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FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 (Mark One) (X)
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended April 30, 2004OR( )
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition period from    to
 Commission File No.: 09081 CERTRON CORPORATION  CALIFORNIA
    
    95- 2461404(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)11845 W.Olympic Boulevard, Suite 1080, Los Angeles, CA
    
    90064(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code: (310)914-0300 N/A 
  Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x
 Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 May 1, 2004




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TABLE OF CONTENTS  PART I.FINANCIAL INFORMATIONItem 1. Financial StatementsCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationItem 3. Quantitative and Qualitative Disclosures About Market Risk.Item 4. Controls and ProceduresPART II. OTHER INFORMATION.Item 5. Exhibits and Reports on Form 8-KSIGNATUREExhibit 31Exhibit 32    Table of Contents  
 PART I.FINANCIAL INFORMATION 
 Item 1. Financial Statements 
 CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ in Thousands) April 30,
    
    October 31,2004
    
    2003ASSETS
    
    (Unaudited)CURRENT ASSETS:Cash and cash equivalents
    
    $
    289
    
    
    $
    432Trade accounts receivable, net
    
    
    12
    
    
    
    25Prepaid Expenses
    
    
    20
    
    
    
    48Total Current Assets
    
    
    321
    
    
    
    505EQUIPMENT AND LEASEHOLD IMPROVEMENTS:Machinery and equipment
    
    
    
    
    
    
    17Furniture, fixtures and leasehold improvements
    
    
    80
    
    
    
    14280
    
    
    
    159Less accumulated depreciation and amortization
    
    
    (80
    )
    
    
    (159
    )Net equipment and leasehold improvements
    
    
    
    
    
    
    MARKETABLE SECURITIES
    
    
    
    
    
    
    58TOTAL ASSETS
    
    $
    321
    
    
    $
    563LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accrued professional fees
    
    
    51
    
    
    
    49Accrued payroll and related items
    
    
    9
    
    
    
    27Other accrued expenses
    
    
    75
    
    
    
    72Total Current Liabilities
    
    
    135
    
    
    
    148STOCKHOLDERS EQUITY:Preferred Stock, $1.00 par value, authorized
500,000 shares, no shares issued and outstandingCommon Stock, no par value; stated value $1.00
per share, authorized 10,000,000 shares;
issued and outstanding 3,128,000
    
    
    3,128
    
    
    
    3,128Additional paid-in capital
    
    
    1,824
    
    
    
    1,824Net unrealized loss on marketable equity securities
    
    
    
    
    
    
    (77
    )Accumulated deficit
    
    
    (4,766
    )
    
    
    (4,460
    )Total Stockholders Equity
    
    
    186
    
    
    
    415TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    321
    
    
    $
    563
 The accompanying notes are an integral part of these financial statements. 1




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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in Thousands except Per Share Information)
(Unaudited) Three Months ended April 30,
    
    Six Months ended April 30,2004
    
    2003
    
    2004
    
    2003(Unaudited)
    
    (Unaudited)NET SALES
    
    $
    18
    
    
    $
    108
    
    
    $
    34
    
    
    $
    207COST OF PRODUCTS SOLD
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    193GROSS PROFIT
    
    
    18
    
    
    
    
    
    
    
    34
    
    
    
    14COST AND EXPENSESReserve for inventory write down
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161Selling, general & administrative
    
    
    128
    
    
    
    145
    
    
    
    299
    
    
    
    309Depreciation and amortization
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    9Total Costs and Expenses
    
    
    128
    
    
    
    149
    
    
    
    299
    
    
    
    479Loss before other income and expenses
    
    
    (110
    )
    
    
    (149
    )
    
    
    (265
    )
    
    
    (465
    )Interest (net)
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    5Gain (Loss) on sale of stock
    
    
    6
    
    
    
    1
    
    
    
    (74
    )
    
    
    1Gain on sale of equipment
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    Other income
    
    
    12
    
    
    
    
    
    
    
    20
    
    
    
    Net loss before provision for taxes
    
    
    (91
    )
    
    
    (146
    )
    
    
    (305
    )
    
    
    (459
    )Provision for taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    
    (91
    )
    
    
    (146
    )
    
    
    (305
    )
    
    
    (459
    )OTHER COMPREHENSIVE INCOME(LOSS):Unrealized
gain (loss) on marketable securities
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    17Comprehensive Loss
    
    $
    (91
    )
    
    $
    (140
    )
    
    $
    (305
    )
    
    $
    (442
    )PER SHARE INFORMATION:Basic loss per share
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.15
    )Diluted loss per share
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.15
    )Average number of common shares
outstanding
    
    
    3,128,000
    
    
    
    3,128,000
    
    
    
    3,128,000
    
    
    
    3,128,000
 The accompanying notes are an integral part of these financial statements. 2




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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited) Six Months Ended April 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (305
    )
    
    $
    (459
    )Adjustment to reconcile net loss
to net cash used in operating activities:Depreciation and amortization
    
    
    
    
    
    
    9Changes in operating assets and liabilities:Decrease in trade accounts receivable
    
    
    13
    
    
    
    13Decrease in inventories
    
    
    
    
    
    
    211(Increase) Decrease in other assets
    
    
    74
    
    
    
    (21
    )Decrease in other current assets
    
    
    28
    
    
    
    32Decrease in current liabilities
    
    
    (13
    )
    
    
    (31
    )Net cash used in operating activities
    
    
    (203
    )
    
    
    (246
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of marketable securities
    
    
    60
    
    
    
    109Purchase of marketable securities
    
    
    
    
    
    
    (31
    )Net cash provided by investing activities
    
    
    60
    
    
    
    (12
    )Net decrease in cash and cash equivalents
    
    
    (143
    )
    
    
    (258
    )Cash and cash equivalents, beginning of period
    
    
    432
    
    
    
    642Cash and Cash equivalents, end of period
    
    $
    289
    
    
    $
    384
 The accompanying notes are an integral part of these financial statements. 3




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CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three Months Ended April 30, 2004
(Unaudited) NOTE A  BASIS OF PRESENTATION The accompanying financial statements and footnotes have been condensed and
therefore do not contain all disclosures required by generally accepted
accounting principles. The interim financial statements are unaudited;
however, in the opinion of Certron Corporation (the Company), the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. Results for interim periods are not necessarily indicative of
those to be expected for the full year. NOTE B  MARKETABLE EQUITY SECURITIES Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities available for sale are
carried at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders equity. At April 30, 2004
the Company had no investments that qualified as trading or held to maturity. Marketable equity securities are valued based on quoted market prices. The
cost of securities sold is determined by the specific identification of cost
method. NOTE C  LOSS OF A MAJOR CUSTOMER As discussed in the Companys Annual Report on Form 10-K for the year ended
October 31, 2003, the Company expected to lose the business of its largest
customer. The loss of the largest customer was confirmed in the first quarter
of fiscal 2004, and with the exception of merchandise that has been ordered for
delivery in March, future orders are expected to be nominal. During the quarter ended April 30, 2004, the Company experienced a much more
severe decline in sales than was expected. This decline was largely a result
of the loss of its major customer and the lack of new customers to replace a
portion of those sales. NOTE E  LEGAL PROCEEDINGS The Company was notified by a letter dated June 2, 2000 received June 6, 2000
that the Company may have a potential liability from waste disposal in the
Casmalia Disposal Site at Santa Barbara County, California. The Company was
given a choice of either signing an agreement that would toll the statute of
limitations for eighteen (18) months in order to allow the Company to resolve
any liability with the government without incurring costs associated with being
named a defendant in a lawsuit, or becoming an immediate defendant in a
lawsuit. The Company signed the tolling agreement. On November 20, 2001, the
tolling agreement was extended for an additional 18 months and on May 20, 2003,
the tolling agreement was again extended for an additional 18 months. While
the amount which will be required to settle this matter is not expected to be
material, Certron is unable to estimate the amount that may be required to
settle this matter. The Company is waiting for communication from the
government concerning settlement of this claim. 4




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The Company received a judgment against a former client of Certron Mexicali
operation on February 9, 2004 in the amount of $19,300. The judgment is being
paid over a course of six months and the company has received $12,800 as of
April 30, 2004. 
 Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operation LIQUIDITY AND CAPITAL RESOURCES As set forth in the following chart, the Companys current ratio was 2.37 to 1
at April 30, 2004. 04/30/04
    
    10/31/03Working capital
    
    $
    186,000
    
    
    $
    357,000Current ratio
    
    
    2.37 to 1
    
    
    
    3.41 to 1
 The Companys liquidity has been supplied from internally generated funds. As a
result of substantially reduced sales, maintaining a minimal number of
employees and the legal, accounting and other costs of remaining a public
company, the Company expects that its cash flow will remain negative. The
Company is unable to predict how long it will have a sufficient amount of cash
to continue as a viable entity. Intense competition in the magnetic media field has made it difficult for the
Company to maintain prices on its magnetic media products and has continually
reduced the Companys margins on these products. As a result, the Company has
discontinued sales of certain magnetic media products and refused to sell
magnetic media products at prices not resulting in certain minimum margin
returns. In addition, the release of the digital video disk system and other
digital products had a material adverse impact on the Companys magnetic media
sales and on the Companys operations. As a result of the intense price
competition and technological changes, the Company has lost its significant
customers and has been unable to compete at a profit in its marketplace. Over the past several years, in an attempt to increase its sales and operating
profits the Company has attempted without success to acquire other businesses
or product lines. More recently, the Company has attempted to maximize
shareholder value through the sale of the Company. RESULTS OF OPERATIONS Second Quarter Fiscal 2004 compared to Second Quarter Fiscal 2003 During the second quarter of fiscal 2004, the Company had a net loss from
operations of $91,000 as compared to a net loss from operations of $146,000
during the second quarter of fiscal 2003. The decrease in net loss for the
second quarter of 2004 compared to the net loss in the second quarter of 2003
was due to a decrease in operating expenses in the second quarter of 2004. Net sales were $18,000 for the second quarter of 2004 as compared to net sales
of $108,000 in the second quarter of 2003. The Company expects the sales in the
third quarter of fiscal 2004 to be approximately the same or less than the
sales in the second quarter of fiscal 2004. As discussed above and in the Companys Annual Report on Form 10-K for the year 5




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ended October 31, 2003, due to continuing intense price competition and
technological changes in the marketplace for its products, during the year
ended October 31, 2003 the Company lost its remaining significant customers and
fully reserved remaining inventory. As a result of these occurrences, the
Company concluded that its audio tape businesses were no longer viable and some
of its product lines were obsolete and the Company placed its emphasis on
attempting to find a buyer for the Company. The Companys major emphasis has
been attempting to sell the Company. Gross margins increased by $18,000 for the quarter ended April 30, 2004, from
$0 in the second quarter of fiscal 2003 to $18,000 in the second quarter of
fiscal 2004. The primary reason for the increase is due to inventory being
fully reserved as of October 31, 2003. The Company has not recorded a provision for federal income tax for the second
quarter of 2004 due to utilization of net operating loss carry forward to
offset taxable income. The Company has from time to time invested cash, not needed in operations, in
commercial paper and in publicly traded common stocks of other companies, and
may purchase additional common stocks in the future. Investments in common
stocks are subject to risks of the market, and market prices may fluctuate and
be adversely affected by the operating results of the issuer, as well as
general economic, political and market conditions. As of April 30, 2004, the
Company did not have any investment in common stocks. In accordance with Generally Accepted Accounting Principles, the Company has
recorded the value of its investments in marketable securities on its Balance
Sheet at market value. At the beginning of the second quarter of fiscal 2004,
the Company sold all of the common stocks held. Six Months Fiscal 2004 compared to Six Months Fiscal 2003 For the first six months of fiscal 2004, the Company had a net loss from
operations of $305,000 as compared to a net loss from operations of $459,000
for the first six months of 2003. The decrease in net loss for the first six
months of fiscal 2004 compared to the net loss in the first six months of
fiscal 2003 was due to a decrease in operating expenses in the first six months
of fiscal 2004. Net sales were $34,000 for the first six months of fiscal 2004 as compared to
net sales of $207,000 for the first six months of fiscal 2003. As discussed above and in the Companys Annual Report on Form 10-K for the year
ended October 31, 2003, due to continuing intense price competition and
technological changes in the marketplace for its products, during the year
ended October 31, 2003 the Company lost its remaining significant customers and
fully reserved remaining inventory. As a result of these occurrences, the
Company concluded that its audio tape businesses were no longer viable and some
of its product lines were obsolete and the Company placed its emphasis on
attempting to find a buyer for the Company. The Companys major emphasis has
been attempting to sell the Company. Gross margins increased by $20,000 for the first six months of fiscal 2004,
from $14,000 in the first six months of fiscal 2003 to $34,000 in the first six
months of fiscal 2004. The primary reason for the increase is due to inventory
being fully reserved as of October 31, 2003. The Company has not recorded a provision for federal income tax for the first
six months of fiscal 2004 due to utilization of net operating loss carry
forward to 6




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offset taxable income. The Company has from time to time invested cash, not needed in operations, in
commercial paper and in publicly traded common stocks of other companies, and
may purchase additional common stocks in the future. Investments in common
stocks are subject to risks of the market, and market prices may fluctuate and
be adversely affected by the operating results of the issuer, as well as
general economic, political and market conditions. As of April 30, 2004, the
Company did not have any investment in common stocks. In accordance with Generally Accepted Accounting Principles, the Company has
recorded the value of its investments in marketable securities on its Balance
Sheet at market value. At the beginning of the second quarter of fiscal 2004,
the Company sold all of the common stocks held. Forward-Looking Statements The Companys statements herein which are not historical facts, including the
statement as to the Companys anticipated sales in the third quarter of the
2004 fiscal year are forward-looking statements. These statements involve
risks and uncertainties that could cause actual results to differ materially
from these forward-looking statements. Factors which could cause actual
results to differ materially include economic conditions, the Companys success
in maintaining its current small customer base, the Companys failure to
consummate a sale of the Company and the Company running out of cash prior to
consummating the sale of the Company. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. 
 Item 4. Controls and Procedures An evaluation was carried out by the Companys chief executive officer and
chief financial officer of the effectiveness of the Companys disclosure
controls and procedures (as defined in Rule 13-a-15e or 15(d)-15(e) of the
Securities Exchange Act of 1934) as of April 30, 2004. Based upon that
evaluation, the chief executive officer and chief financial officer concluded
that the design and operation of these disclosure controls and procedures were
effective. During the period covered by this report, there have been changes
in the Companys internal control over financial reporting that have materially
affected or are reasonably likely to materially affect the Companys internal
control over financial reporting. 7




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PART II. OTHER INFORMATION. 
 Item 5. Exhibits and Reports on Form 8-K  (a)
    
    Exhibit:  31.
    
    Rule 13(a)-14(a)/15(d)-14(a) Certification32.
    
    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 April 30, 2004, a report on Form 8-K/A was
filed on February 24, 2004 amending a Form 8K filed on February 11,
2004 reporting under Item 4 a change in registrants principal
accountant to audit registrants financial statements. 8




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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 CORPORATIONDate: May 26, 2004
    /s/ Marshall I. KassMarshall I. KassChairman of the Board,
Chief Executive Officer and
Principal Financial Officer 9