FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2005
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
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2461404
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Rosemont Ave. Frederick, MD 21701 21701
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (301) 644-3901
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11845 W. Olympic Boulevard, Suite 1080, Los Angeles, California 90064
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
3,128,306 shares of Common Stock, without par value, as of March 15, 2005**
**Does not include the issuance of 47,328,263 shares which are issuable as a
result of the merger with Cybrdi.
INDEX
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as at January 31, 2005
Statement of Operations for three month ended January 31, 2005 and
January 31, 2004
Statement of Cash Flows for three month ended January 31, 2005 and
January 31, 2004
Notes to Interim Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operations
Item 3. Controls and Procedures
Exhibits
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon senior securities
Item 4. Submission of matters to a vote of security holders
Item 5. Other information
Item 6. Exhibits and reports on Form 8-K
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CERTRON CORPORATION
BALANCE SHEETS
($ in Thousands)
January 31, October 31,
2005 2004
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 76 $ 155
Accounts receivable, net 1 5
Prepaid expenses 1 3
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Total Current Assets 78 163
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EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Furniture, fixtures and leasehold improvements 7 7
Less accumulated depreciation and amortization (7) (7)
Net Equipment and Leasehold Improvements -- --
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Total Assets $ 78 $ 163
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued professional fees $ 42 $ 61
Accrued payroll and related items 11 3
Other accrued expenses 25 57
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Total Current Liabilities 78 121
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; stated value $1 per share;
authorized 10,000,000 shares; issued and outstanding,
3,128,000 shares 3,128 3,128
Additional Paid-In Capital 1,892 1,892
Accumulated deficit (5,020) (4,978)
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Total Stockholders' Equity -- 42
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Total Liabilities and Stockholders' Equity $ 78 $ 163
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The accompanying notes are an integral part of these financial statements
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CERTRON CORPORATION
STATEMENTS OF OPERATIONS
($ in Thousands)
(Unaudited)
For the Three Months Ended
January 31,
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2005 2004
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NET SALES $ 3 $ 16
COST OF PRODUCTS SOLD -- --
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GROSS PROFIT 3 16
COST AND EXPENSES
Reserve for inventory write down
Selling, general and administrative 46 171
Depreciation and amortization
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Total Cost and Expenses 46 171
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Loss before other income and expenses (43) (155)
Realized loss on marketable securities -- (81)
Gain on sale of equipment -- 12
Other income 1 10
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Net loss before provision for income taxes (42) (214)
Provision for taxes -- --
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Net Loss (42) (214)
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OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain on Marketable Securities -- 6
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Comprehensive Loss $ (42) $ (208)
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PER SHARE INFORMATION:
Basic net loss per share $ (0.01) $ (0.07)
Diluted net loss per share $ (0.01) $ (0.07)
Weighted Average number of Common Shares Outstanding 3,128,000 3,128,000
The accompanying notes are an integral part of these financial statements
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CERTRON CORPORATION
STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)
For the Three Months Ended
January 31,
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2005 2004
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CASH FLOWS FORM OPERATING ACTIVITIES:
Net Loss $ (42) $(214)
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Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization
Gain on sale of equipment -- (12)
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 4 21
(Increase) Decrease in inventories
Decrease in other assets 2 21
Decrease in current liabilities (43) (6)
Loss on sales on investment -- 81
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Net cash used in operating activities $ (79) $(109)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities -- 48
Proceeds from sale of equipment -- 12
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Net cash provided by investing activities -- 60
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Net Decrease in Cash and Cash Equivalents $ (79) $ (49)
Cash and Cash Equivalents, Beginning of Period 155 432
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Cash and Cash Equivalents, End of Period $ 76 $ 383
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The accompanying notes are an integral part of these financial statements
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CERTRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended January 31, 2005
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying financial statements and footnotes have been condensed and
therefore do not contain all disclosures required by generally accepted
accounting principles. The interim financial statements are unaudited; however,
in the opinion of Certron Corporation (the "Company"), the interim financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods. Results for interim periods are not necessarily indicative of those to
be expected for the full year.
Until its acquisition of Cybrdi, Inc. on February 10, 2005 as more fully
described under "Subsequent Events", the Company's business consisted primarily
of the distribution of magnetic media products. The accompanying financial
statements do not include operating results of Cybrdi as the closing of the
acquisition occurred after January 31, 2005.
NOTE B - ASSETS
The January 31, 2005 balance sheet included total current assets of
approximately $ 78,000 and zero non-current assets. Of these amounts,
approximately $76,000 cash is planned for settling current payables. Due to
continuing intense price competition and technological changes in the
marketplace for its products, the Company lost its remaining significant
customers during the last two fiscal years and fully reserved remaining
inventory.
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 classified as available-for-sale are
carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. At January 31, 2005
the Company had no investments that qualified as trading or held to maturity.
NOTE C - LIABILITIES
The January 31, 2005 balance sheet included total liabilities of approximately
$78,000. Approximately $11,000 was payroll related payables and the remaining
were legal and professional fees payables related to the acquisition of Cybrdi
and accrual for potential liabilities as discussed in Note D.
NOTE D - 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
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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 January 31, 2005, the
Company has accrued a sufficient amount to cover any potential liabilities from
this matter.
NOTE E - Subsequent Events
On February 10, 2005, (the "Closing Date") the Company closed on an Agreement
and Plan of Merger (the "Agreement") among the Company, Certron Acquisition
Corp., a Maryland corporation and a wholly-owned subsidiary of the Company
("Acquisition Sub"), and Cybrdi, Inc., a Maryland corporation, relating to the
acquisition by the Company of all of the issued and outstanding capital stock of
Cybrdi, Inc. in exchange for shares of common stock of Certron that will
aggregate approximately 93.8% of the issued and outstanding common stock of the
Company. Pursuant to the terms of the Agreement, at the Closing Date (a)
Acquisition Sub has been merged with and into Cybrdi, Inc., with Cybrdi, Inc.
being the surviving corporation, (b) the common stock of Cybrdi has been
cancelled and converted into the right to receive shares of the common stock of
Registrant at an exchange ratio of 1.566641609. This will result in the issuance
of up to 47,328,263 shares of the Company's common stock , and (c) each share of
the common stock of Acquisition Sub has been converted in to and become one
share of the common stock of Cybrdi resulting in Cybrdi becoming a wholly-owned
subsidiary of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the following chart, the Company's current ratio was 1 to 1 at
January 31, 2005.
January 31, 2005 October 31, 2004
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Working capital $ 0 $42,000
Current ratio 1 to 1 1.32 to 1
The Company's working capital decreased at January 31, 2005 as compared to that
at October 31, 2004, which was primarily due to the decline in sales. The
Company's liquidity had been supplied from internally generated funds. 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. As a result of substantially reduced
sales, the company maintains a minimal number of employees and tightened legal,
accounting and other costs of remaining a public company. The Company expects
that as long as its business remains the sale of magnetic field products, its
cash flow will remain negative and will not be able to sustain its current
business operations
With the acquisition of Cybrdi, the Company believes it will have sufficient
external resources to finance its operations for the coming year.
RESULTS OF OPERATIONS
First Quarter Fiscal 2005 compared to First Quarter Fiscal 2004
The Company's business consisted primarily of the distribution of magnetic media
products, until its acquisition of Cybrdi, Inc. in February 2005. The
accompanying financial statements do not include operating results of Cybrdi. As
discussed above, due to continuing intense price competition and technological
changes in the marketplace for its products, the Company lost its remaining
significant customers and fully reserved remaining inventory. As a result of
these occurrences, the Company concluded that its audio tape businesses were no
longer viable and some of its product lines were obsolete and the Company placed
its emphasis on attempting to find a buyer for the Company. The Company's major
emphasis has been attempting to sell the Company.
Net sales of approximately $3,000 during the first quarter of 2005 were isolated
sales of the remaining inventory which had fully reserved.
During the first quarter of fiscal 2005, the Company had a net loss from
continuing operations of $42,000, compared to a net loss from continuing
operations of $214,000 in the first quarter of fiscal 2004. The decrease in the
net loss from continuing operations for the first quarter of fiscal 2005
compared to the net loss from continuing operations in the first quarter of 2004
was due to the decrease in Selling, General and Administration Expenses of
$171,000 in the first quarter of 2004 to $46,000 in the first quarter of 2005. A
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bigger net loss for the first quarter of 2004 was also attributed to the $81,000
realized loss on marketable securities. At the beginning of the second quarter
of fiscal 2004, the Company sold all of the common stocks held.
The Company has not recorded a provision for federal income tax for first
quarter of 2005 due to utilization of net operating loss carry forward to offset
taxable income.
Subsequent Events
On February 10, 2005, (the "Closing Date") the Company closed on an Agreement
and Plan of Merger (the "Agreement") among the Company, Certron Acquisition
Corp., a Maryland corporation and a wholly-owned subsidiary of the Company
("Acquisition Sub"), and Cybrdi, Inc., a Maryland corporation, relating to the
acquisition by the Company of all of the issued and outstanding capital stock of
Cybrdi, Inc. in exchange for shares of common stock of Certron that will
aggregate approximately 93.8% of the issued and outstanding common stock of the
Company. Pursuant to the terms of the Agreement, at the Closing Date (a)
Acquisition Sub has been merged with and into Cybrdi, Inc., with Cybrdi, Inc.
being the surviving corporation, (b) the common stock of Cybrdi has been
cancelled and converted into the right to receive shares of the common stock of
Registrant at an exchange ratio of 1.566641609. This will result in the issuance
of up to 47,328,263 shares of the Company's common stock , and (c) each share of
the common stock of Acquisition Sub has been converted in to and become one
share of the common stock of Cybrdi resulting in Cybrdi becoming a wholly-owned
subsidiary of the Company.
Concurrent with the filing of the Articles of Merger, all of the Company's then
existing officers and directors tendered their resignation and Yanbiao Bai was
appointed as our Chairman and Chief Executive Officer.
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. 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 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.
With the completion of the merger, all of the magnetic media distribution
business activities have ceased and the Company's sole business is conducted
through Cybrdi.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-QSB contain or may
contain forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors. Most of these factors are
difficult to predict accurately and are generally beyond our control. You should
consider the areas of risk described in connection with any forward-looking
statements that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Readers should carefully review this quarterly report in its
entirety, including but not limited to our financial statements and the notes
thereto. Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. For any forward-looking
statements contained in any document, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures.
An evaluation was carried out by the Company's chief executive officer and chief
financial officer of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rule 13a-15e or 15(d)-15(e) of the Securities Exchange
Act of 1934) as of January 31, 2004. Based upon that evaluation, the chief
executive officer and the chief financial officer concluded that the design and
operation of these disclosure controls and procedures were effective. During the
period covered by this report, there have been 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities,
None.
Item 3. Defaults upon senior securities.
None.
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Item 4. Submission of matters to a vote of security holders.
There were no matters submitted during the quarter ended January 31, 2005 to a
vote of the Company's securities holders. However, on February 2, 2005 a special
meeting of the shareholders was called to vote upon the following matters:
1. To consider and vote upon the approval of the principal terms of a
merger transaction pursuant to an Agreement and Plan of Merger among the
Company, Certron Acquisition Corp., a wholly owned subsidiary of the Company,
and Cybrdi, Inc. pursuant to which Certron Acquisition Corp. will be merged into
Cybrdi, Inc., with Cybrdi, Inc. being the surviving entity and becoming a
wholly-owned subsidiary of the Company, and the stockholders of Cybrdi, Inc.
receiving up to 47,328,263 shares of the Company's Common Stock so that,
immediately post-Merger, the former stockholders of Cybrdi will own
approximately 93.8% of the Company's issued and outstanding Common Stock.
Approval of the Merger transaction also constitutes election of new directors
for the Company effective upon consummation of the Merger.
2. To approve an amendment to the Company's Articles of Incorporation,
as amended, to increase the authorized number of shares of Common Stock, no par
value, from 10,000,000 to 150,000,000 shares .
3. To approve an amendment to the Company's Articles of Incorporation,
as amended, to change the Company's name to "Cybrdi, Inc."
All of the foregoing amendments were approved by the shareholders.
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Item 5. Exhibits and Report on Form 8-K
(a) Exhibits:
31. Rule 13(a)-14(a)/15(d)-14(a) Certification
32.1 Certification of Chief Executive Officer and Chief Financial
Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
During the quarter ended January 31, 2005, no Form 8-ks were filed
with the Securities and Exchange Commission
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CERTRON CORPORATION
DATE: March 16, 2005 /s/ Yanbiao Bai
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Yanbiao Bai
Chairman of the Board
President and
Chief Financial Officer
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