U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended: April 30, 1999
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number: 0-10187
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Prab, Inc.
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(Exact name of small business issuer as
specified in its charter)
Michigan 38-1654849
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5944 E. Kilgore Rd, P.O. Box 2121, Kalamazoo, Michigan 49003
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(Address of principal executive offices)
(Zip Code)
(616) 382-8200
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(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, par value $.10 per share - 1,757,339 shares outstanding at
May 31, 1999.
Transitional Small Business Disclosure Format
(Check One): Yes ____ No __X__
Page 1 of 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
The following Financial Statements are attached hereto in response to
Item 1:
Condensed Consolidated Balance Sheet
April 30, 1999 (Unaudited)
October 31, 1998
Consolidated Statement of Earnings
Three months ended April 30, 1999
and 1998 (Unaudited)
Six months ended April 30, 1999
and 1998 (Unaudited)
Condensed Consolidated Statement
of Cash Flows (Unaudited)
Six months ended April 30, 1999
and 1998 (Unaudited)
Notes to Condensed Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Material Changes in Financial Condition. Accounts receivable decrease
resulted from lower sales in the first six months of 1999 versus the same
period a year ago. Inventory decreased due to lower shipments in the first
six months of 1999. Other current assets increased primarily from prepaid
insurance.
Accounts and note payable decrease resulted primarily from lower
accounts payable. Other current liabilities decreased mainly from paying the
fiscal year 1998 accrued bonus combined with lower accruals for customer
deposits and commissions. The Company also paid in full the remaining portion
of the term debt which included $360,000 in other current liabilities.
Long term debt was completely paid off in the first six months of 1999,
approximately two and one half years ahead of schedule.
Additional paid-in capital increased from recording income tax
recoveries directly to paid-in capital.
Page 2 of 14
Material Changes in Results of Operations. Sales in the first six
months of 1999 were 21% lower than the first six months of 1998. Lower sales
are the result of a lower backlog going into fiscal year 1999 and a
continuing weakness in booking new business for the Company's Prab Conveyor
product line.
Costs of products sold were 63% in the first six months of 1999
compared to 61% a year ago. Selling, general and administrative expenses were
35% in the first six months of 1999 compared to 30% in the same period a year
ago. The increase primarily results from the Company deciding to retain
nearly all employees and focus on increasing sales in the short term rather
than try to cut costs by laying off employees due to the lower sales.
Interest expense decreased as a result of lower debt. With the
early payoff of the term debt, interest expense will be significantly lower
in the last six months of the year.
The order backlog of $3,672,000 at the end of the second quarter
ended April 30, 1999 compares with $2,829,00 at the end of the previous
quarter ended January 31, 1999 and $4,732,000 at the end of the second
quarter a year ago. Sales and earnings are expected to be materially lower in
fiscal year 1999. The extent of the decrease in sales and earnings cannot be
accurately determined at this time and will be affected by the general
economy in 1999 and efforts by the Company to increase sales and reduce
expenses.
Year 2000 Issue. The company has been, and is currently, in process
of addressing a significant issue facing all users of automated information
systems. The problem is that many computer systems that process transactions
based on two digits representing the year of transaction may recognize a date
using "00" as the year 1900 rather that the year 2000, or otherwise not
properly process dates in the year 2000.
The Company has evaluated its products, both past and present, for
the year 2000 compliance. None of the products that the Company currently
supplies contain a date function, and therefore, are not affected by the year
2000 problem. While the Company cannot determine with certainty that no
products supplied in the past are affected by the year 2000 problem, the
Company is not aware of any such products which contain a year 2000 defect.
The Company has evaluated its internal systems and, in the opinion
of management, there is no reason to believe that any
Page 3 of 14
computer systems or software used internally by the Company will materially
affect its operations or any transactions with any customer, supplier or
business partner, now or in the future. The Company has also conducted an
evaluation of its key suppliers of goods and services and, in the opinion of
management, there is no reason to believe that any computer systems operated
by the Company's suppliers and business partners will encounter a year 2000
problem which would have a material adverse effect on the Company's
operations. In addition, the Company believes that it has alternative sources
for all goods and services presently provided to the Company. In the event
that the year 2000 problem causes a disruption of basic services such as
utilities or banking or a sustained disruption of the economy in general, the
Company will be adversely affected. The Company has not adopted any
contingency plans regarding the year 2000 because it does not believe any
materially adverse events are likely to occur for which such plans would be
of benefit.
The Company anticipates that its total expenditures to address the
year 2000 problem will not exceed $50,000. This amount does not include the
cost of upgrading the Company's computer system in fiscal year 1998, which
upgrade was undertaken for reasons other that year 2000 concerns. The total
cost of the upgrade was approximately $150,000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
Page 4 of 14
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRAB, INC.
Date: June 4, 1999 By: /S/ Gary A. Herder
------------------------
Gary A. Herder
Its: Chairman, President and
Chief Executive Officer
Date: June 4, 1999 By: /S/ Robert W. Klinge
------------------------
Robert W. Klinge
Its: Chief Financial Officer
Page 5 of 14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report on Form 10-QSB
For the Quarter Ended April 30, 1999
--------------------
Financial Statements
--------------------
PRAB, INC.
(A Michigan Corporation)
5944 E. Kilgore Road
P.O. Box 2121
Kalamazoo, Michigan 49003
Page 6 of 14
PRAB, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
April 30, October 31,
1999 1998
---------- ----------
Unaudited (Note)
ASSETS
Current assets:
Cash $ 47,058 $ 51,621
Accounts Receivable 2,061,316 3,367,308
Inventories (Note 2) 1,345,093 1,413,078
Other current assets 195,425 117,148
Deferred income taxes 431,296 431,296
---------- ----------
Total current assets 4,080,188 5,380,451
---------- ----------
Property, plant and equipment
(net of accumulated depreciation
of $3,565,895 and $3,476,845
respectively) 1,055,896 1,085,202
---------- ----------
Other assets
Deferred charges and other assets 102,034 134,054
Deferred income taxes 402,714 381,704
---------- ----------
Total other assets 504,748 515,758
---------- ----------
Total assets $5,640,832 $6,981,411
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts and note payable $ 998,152 $1,186,312
Other current liabilities 1,122,711 1,934,525
---------- ----------
Total current liabilities 2,120,863 3,120,837
---------- ----------
Long term debt -- 420,000
---------- ----------
Other non-current liabilities 17,777 17,183
---------- ----------
Stockholders' equity:
Convertible preferred stock 275,000 275,000
Common stock 175,734 175,734
Additional paid in capital 1,192,361 1,161,828
Retained Earnings 1,859,097 1,810,829
---------- ----------
Total stockholders' equity 3,502,192 3,423,391
---------- ----------
Total liabilities and stock-
holders' equity $5,640,832 $6,981,411
========== ==========
Note: The balance sheet at October 31, 1998, has been taken from the
audited financial statements at that date and condensed.
Page 7 of 14
PRAB, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three months ended Six months ended
April 30, April 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Net Sales $ 3,596,153 $ 4,443,023 $ 6,895,065 $ 8,675,786
----------- ----------- ----------- -----------
Costs and expenses:
Cost of products sold 2,292,738 2,604,324 4,333,660 5,329,709
Selling, general and
administrative expenses 1,237,915 1,340,100 2,437,361 2,620,422
----------- ----------- ----------- -----------
3,530,653 3,944,424 6,771,021 7,950,131
----------- ----------- ----------- -----------
Operating Income 65,500 498,599 124,044 725,655
----------- ----------- ----------- -----------
Interest expense 11,712 27,447 32,971 66,154
----------- ----------- ----------- -----------
Income before income taxes
and extraordinary item 53,788 471,152 91,073 659,501
Provision for income taxes 15,168 154,504 31,805 222,754
----------- ----------- ----------- -----------
Income before extraordinary
item 38,620 316,648 59,268 436,747
Extraordinary Item - Loss on
extinguishment of debt (net of
income taxes of $39,931)
(Note 5) -- -- -- 77,512
----------- ----------- ----------- -----------
Net income $ 38,620 $ 316,648 $ 59,268 $ 359,235
=========== =========== =========== ===========
Earnings (Loss) Per Common Share:
(Note 4)
Basic:
Earnings before
extraordinary item $ .02 $ .18 $ .03 $ .24
Extraordinary item -- -- -- (.04)
----------- ----------- ----------- -----------
Net Earnings $ .02 $ .18 $ .03 $ .20
=========== =========== =========== ===========
Diluted:
Earnings before
extraordinary item $ .02 $ .14 $ .03 $ .19
Extraordinary item -- -- -- (.03)
----------- ----------- ----------- -----------
Net Earnings $ .02 $ .14 $ .03 $ .16
=========== =========== =========== ===========
Page 8 of 14
PRAB, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six months ended
April 30
-------------------------
1999 1998
---- ----
Net cash provided by (used in)
operating activities $ 898,919 $ 1,465,913
--------- -----------
Cash flows from investing activities:
Acquisition of property,
plant and equipment (64,732) (136,158)
Proceeds from sale of equipment 2,250 1,700
--------- -----------
Net cash provided by (used in)
investing activities: (62,482) (134,458)
--------- -----------
Cash flows from financing activities:
(Payment)/Proceeds on long-term
debt and current maturities (780,000) (860,000)
Net increase (decrease) in Short
term borrowings (50,000) (400,000)
Dividend Payments (11,000) (9,625)
--------- -----------
Net cash provided by (used in)
financing activities (841,000) (1,269,625)
--------- -----------
Net increase (decrease) in cash $ (4,563) $ 61,830
========= ===========
Page 9 of 14
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet at April 30, 1999, the
consolidated statement of earnings and the condensed consolidated statement
of cash flows for the three-month and six month periods ended April 30, 1999
and 1998, have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at April 30, 1999, and for all
periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's October
31, 1998, annual report to stockholders. The results of operations for the
period ended April 30, 1999, is not necessarily indicative of the operating
results for the full year.
2. INVENTORIES:
Inventories consist of the following:
April 30, October 31,
1999 1998
--------- -----------
Raw materials $ 776,303 $1,036,846
Work in process 358,425 208,214
Finished goods and
display units 210,365 168,018
---------- ----------
Total inventories $1,345,093 $1,413,078
========== ==========
3. UNUSED LINE OF CREDIT:
The current agreement allows maximum financing of $1,743,000. All of the
Company's assets provide security for the borrowings. As of April 30, 1999
the amount borrowed on the line of credit was $150,000, which left a balance
of $1,593,000 available to the Company.
Page 10 of 14
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. RECONCILIATION OF EARNINGS PER SHARE:
FOR THE QUARTER ENDED APRIL 30, 1999
------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ---------
Income before
extraordinary item $ 38,620
Less: Preferred stock
dividends 5,500
---------
Basic EPS
Income available to common
stockholders 33,120 1,757,339 $.02
====
Effect of dilutive securities
Stock options 101,479
Convertible preferred stock 5,500 366,667
--------- ---------
Diluted EPS
Income available to Common
stockholders & assumed
conversions $ 38,620 2,225,485 $.02
========= ========= ====
FOR THE QUARTER ENDED APRIL 30, 1998
------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ---------
Income before
extraordinary item $ 316,648
Less: Preferred stock
dividends 4,813
---------
Basic EPS
Income available
to common stockholders 311,835 1,757,339 $.18
====
Effect of dilutive securities
Stock options 134,020
Convertible preferred stock 4,813 366,667
--------- ---------
Diluted EPS
Income available to Common
stockholders & assumed
conversions $ 316,648 2,258,026 $.14
========= ========= ====
Page 11 of 14
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. RECONCILIATION OF EARNINGS PER SHARE (CONTINUED):
FOR THE SIX MONTHS ENDED APRIL 30, 1999
---------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ---------
Income before
extraordinary item $ 59,268
Less: Preferred stock
dividends 11,000
---------
Basic EPS
Income available to common
stockholders 48,268 1,757,339 $.03
====
Effect of dilutive securities
Stock options 119,081
Convertible Preferred stock -- --
--------- ---------
Diluted EPS
Income available to Common
stockholders & assumed
conversions $ 48,268 1,876,420 $.03
========= ========= ====
FOR THE SIX MONTHS ENDED APRIL 30, 1998
---------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ---------
Income before
extraordinary item $ 436,747
Less: Preferred stock
dividends 9,625
---------
Basic EPS
Income available
to common stockholders 427,122 1,757,339 $.24
====
Effect of dilutive securities
Stock options 126,941
Convertible preferred stock 9,625 366,667
--------- ---------
Diluted EPS
Income available to Common
stockholders & assumed
conversions $ 436,747 2,250,947 $.19
========= ========= ====
Convertible preferred stock had an antidilutive effect on diluted earnings
per share for the six months ended April 30, 1999 and was not used in the
calculation of diluted earnings per share for this period.
Page 12 of 14
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT:
The Company's 12% subordinated notes were repaid in November 1997.
Since the payoff amount of this debt exceeded its carrying amount, the
transaction decreased income by $77,512 net of income taxes of $39,931.
Page 13 of 14