1
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: July 31, 2001
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[ ] 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 - 1,818,793 shares outstanding at August
31, 2001.
Transitional Small Business Disclosure Format
(Check One): Yes No X
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following Financial Statements are attached hereto in response to Item 1:
Condensed Consolidated Balance Sheet
July 31, 2001 (Unaudited)
October 31, 2000
Consolidated Statement of Earnings
Three months ended July 31, 2001
and 2000 (Unaudited)
Nine months ended July 31, 2001
and 2000 (Unaudited)
Condensed Consolidated Statement
of Cash Flows
Nine months ended July 31, 2001
and 2000 (Unaudited)
Notes to Condensed Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
Material Changes in Financial Condition. The Company's business is not
seasonal; however, fluctuations in sales are common due to large system orders,
which is typical of the capital equipment industry. The third quarter sales
included a large equipment order totaling $788,000 of which the customer prepaid
$549,000 resulting in higher cash and lower accounts receivable at the end of
the third quarter of 2001 versus the end of the prior fiscal year.
The Company has satisfied its liquidity requirements in the first nine
months of 2001 primarily through cash flow provided from operations which
totaled $842,181. This primarily resulted from net income combined with
depreciation expense and decreasing accounts receivable, inventory, other
current assets, increased accrued expense, and partially offset by a decrease in
accounts payable. The largest use of cash flow provided by operations was
repaying the $425,000 balance on the line of credit outstanding at the end of
fiscal year 2000, which accounted for much of the decrease in accounts and note
payable.
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In August, 50,000 shares of the Company's common stock were repurchased
from a former officer of the Company at a price of $1.10 per share. The
repurchased shares will be retired from circulation.
The continuation of the sluggish capital goods industry may require the
Company to begin drawing on its line of credit to fund operations in the short
term. In addition, the Company's agreement with the union expires on October 31,
2001, which, in the event of a strike, the Company's sales and income could be
significantly lowered until the strike is settled. The Company has a $1,000,000
line of credit which is subject to a borrowing formula based upon certain asset
levels of the Company. As of July 31, 2001, $1,000,000 was available to the
Company under the line of credit and the Company had no borrowings of such
amount. The Company believes this financing, combined with cash generated by
operations, will provide sufficient funds to finance working capital
requirements, and capital additions at this time.
Material Changes in Results of Operations. Sales in the first nine
months of 2001 were 5% lower than the first nine months of 2000. Lower sales are
the result of significantly decreased order activity in the first three months
of 2001 versus a year ago in both the Prab Conveyor and Hapman Conveyor product
lines. New business order bookings have decreased 10% in the first nine months
of 2001 compared to the same period a year ago.
The Company's business is highly competitive and very sensitive to
price. The actual sales fluctuation due to price is not known. The order backlog
amount at the beginning of a quarter will significantly affect sales for that
quarter, due to most equipment orders requiring an eight to twelve week period
for engineering, ordering materials, manufacturing, assembly and final run off,
if required. Large system orders typically have the greatest impact on sales and
backlog. The metal scrap system sales for the Prab Conveyor product line
decreased 58% in the first nine months of 2001 versus the same period a year
ago. We believe much of the decrease resulted from weakness in automobile sales
and manufacturing, where most of these systems would be sold to suppliers for
the automotive industry, combined with resolving warranty problems on several
systems. The bulk material handling systems contributed to the increase in sales
during the first nine months of the Hapman Conveyor product line, which
increased sales 3% versus the same period a year ago.
Costs of products sold were 63% in the first nine months of 2001
compared to 64% a year ago. Selling, general and administrative expenses were
34% in the first nine months of 2001 and 33% in the same period a year ago. The
increase was partially due to $43,811 of relocation expenses incurred to move
the Company's lone employee from Arizona back to Kalamazoo in an effort to
reorganize and strengthen the sales department combined with $34,000 of
recruiter fees and relocation expenses booked in the third quarter associated
with the hiring of a new vice president of sales for the Hapman Conveyor product
line. The annualized warranty expense for fiscal 2001 based on the first nine
months is $253,000 compared to $615,000 actual expense in fiscal 2000. During
fiscal 2000, the management team implemented plans
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to reduce future warranty expenses. These plans include; improving the alignment
of engineering talent and experience with specific applications, implementing
more selective acceptance and approval procedures for specific and difficult
product applications, and improved equipment applications guidelines for use by
sales and engineering personnel. Also, during 2000, the Company worked to
isolate component failures and engineer alternatives for these components in
equipment designs for future applications.
Lower interest expense resulted from paying off the line of credit in
March.
During March 2000, the Company entered into an agreement to sell the
remaining Prab Robot product line assets, including inventory, test equipment,
engineering drawings, job files, vendor information, customer lists, sales
history, sales aids, and five-year convenant not to compete to a single buyer
for $5,000 cash, and a non-interest bearing note of $15,000. The note receivable
is payable in two payments, $5,000 before June 30, 2000 (which was paid timely),
and the balance due not later than March 31, 2001 (which was renegotiated). The
book value of the assets sold was approximately $0 due to offsetting lifo and
lower of costs or market inventory reserves. The remaining $10,000 due was
renegotiated by the purchaser, allowing for a $5,000 cash payment as payment in
full (which has been paid). The Company wrote off the remaining $5,000 to bad
debt expense in April 2001.
During fiscal 2000, the Company became aware of a legal action arising
out of its disposal of waste at a local landfill. At the same time the Company
was offered a settlement agreement to prevent future legal action. During April
2000, the Company settled this matter for a total of $25,000, and paid this
amount in May 2000.
The order backlog of $3,878,000 at the end of the third quarter ended
July 31, 2001 compares with $4,186,000 at the end of the previous quarter ended
April 30, 2001 and $2,940,000 at the end of the third quarter a year ago.
Included in the bookings for the first nine months of 2001 is an order
for approximately $1,386,000 that is scheduled to ship in the second quarter of
2002. Shipments scheduled in the first quarter of 2002 are low at this time.
Cost reduction measures will be implemented if the sluggish economy does not
improve and new bookings can not fill the shipment schedule.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
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No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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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: September 11, 2001 By: /S/ Gary A. Herder
--------------------
Gary A. Herder
Its: Chairman, President and
Chief Executive Officer
Date: September 11, 2001 By: /S/ Robert W. Klinge
---------------------
Robert W. Klinge
Its: Chief Financial Officer
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report on Form 10-QSB
For the Quarter Ended July 31, 2001
-----------------------------------
Financial Statements
-----------------------------------
PRAB, INC.
(A Michigan Corporation)
5944 E. Kilgore Road
P.O. Box 2121
Kalamazoo, Michigan 49003
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PRAB, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
July 31, October 31,
2001 2000
------------------ -----------------
Unaudited (Note)
ASSETS:
Current assets:
Cash $ 438,069 $ 68,480
Accounts Receivable 1,948,165 2,322,523
Inventories (Note 2) 1,627,815 1,734,828
Other current assets 176,708 241,696
Deferred income taxes 409,642 381,852
----------------- -----------------
Total current assets $ 4,600,399 $ 4,749,379
----------------- -----------------
Property, plant and equipment
(net of accumulated depreciation of
$4,023,297 and $3,869,982 respectively) 909,406 982,629
----------------- -----------------
Other Assets
Deferred charges and other assets 134,381 138,362
Deferred income taxes 204,108 346,239
----------------- -----------------
Total other assets 338,489 484,601
----------------- -----------------
Total assets $ 5,848,294 $ 6,216,609
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts and note payable $ 598,307 $ 1,353,507
Other current liabilities 1,298,531 1,167,066
----------------- -----------------
Total current liabilities 1,896,838 2,520,573
----------------- -----------------
Other non-current liabilities 20,573 19,608
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Stockholders' equity:
Common Stock 181,879 176,734
Additional paid-in capital 1,107,556 1,080,202
Retained earnings 2,641,448 2,419,492
----------------- -----------------
Total stockholders' equity 3,930,883 3,676,428
----------------- -----------------
Total liabilities and stockholders' equity $ 5,848,294 $ 6,216,609
================= =================
Note: The balance sheet at October 31,2000, has been taken from the audited
financial statements at that date and condensed.
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PRAB, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
----------------------------- ------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales $ 4,429,152 $ 4,318,227 $ 11,223,968 $ 11,765,768
Costs and expenses:
Cost of products sold 2,810,354 2,866,366 7,104,014 7,553,303
Selling, general and administrative
expenses (Note 8) 1,298,924 1,309,560 3,786,721 3,914,744
------------ ------------ ------------ ------------
4,109,278 4,175,926 10,890,735 11,468,047
------------ ------------ ------------ ------------
Operating Income 319,874 142,301 333,233 297,721
------------ ------------ ------------ ------------
Other income (expenses):
Interest expense 5,510 (8,989) (203) (21,203)
Gain (loss) on sale of property, plant
and equipment (Note 6) -- (2,232) -- 17,768
Litigation settlement (Note 7) -- -- -- (25,000)
------------ ------------ ------------ ------------
Income before income taxes 325,384 131,080 333,030 269,286
Provision for income taxes 113,601 47,867 111,074 99,562
------------ ------------ ------------ ------------
Net Income $ 211,783 $ 83,213 $ 221,956 $ 169,724
============ ============ ============ ============
Earnings (loss) per common share:
(Note 5)
Basic $ .12 $ .05 $ .12 $ (.09)
============ ============ ============ ============
Diluted $ .12 $ .04 $ .12 $ (.09)
============ ============ ============ ============
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PRAB, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months ended
July 31,
----------------
2001 2000
---- ----
Net cash provided by (used in) operating activities $ 842,181 $ 564,884
---------------- -----------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (80,092) (126,065)
Proceeds from sale of property and equipment 0 10,000
---------------- ----------------
Net cash provided by (used in) investing
activities: (80,092) (116,065)
---------------- ----------------
Cash flows from financing activities:
Net increase (decrease) in short term borrowings (425,000) 140,000
Proceeds from sale of common stock 32,500 8,125
Dividend payments 0 (3,544)
Repurchase of stock 0 (597,666)
---------------- ----------------
Net cash provided by (used in) financing activities
(392,500) (453,085)
---------------- ----------------
Net increase (decrease) in cash 369,589 (4,266)
CASH - Beginning 68,480 46,637
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CASH - Ending $ 438,069 $ 42,371
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PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet at July 31, 2001, the
consolidated statement of earnings and the condensed consolidated statement of
cash flows for the three-month and nine month periods ended July 31, 2001 and
2000, 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 July 31, 2001, 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, 2000, annual
report to stockholders. The results of operations for the period ended July 31,
2001, is not necessarily indicative of the operating results for the full year.
2. INVENTORIES:
Inventories consist of the following:
July October
31, 2001 31, 2000
------------- ------------
Raw materials $ 438,696 $ 1,053,827
Work in process 608,257 237,747
Finished goods and display
Units 580,862 443,254
----------------- ------------------
Total inventories $ 1,627,815 $ 1,734,828
================= ==================
3. UNUSED LINE OF CREDIT:
The company has a $1,000,000 line of credit which is subject to a
borrowing formula based upon certain asset levels of the Company. As of July 31,
2001, $1,000,000 was available to the Company under the line of credit and the
Company had no borrowings on the line of credit.
4. CONVERTIBLE PREFERRED STOCK:
On December 28, 1999 the Company redeemed 366,667 shares of convertible
preferred stock from the State of Michigan Retirement Systems (SMRS). The
redemption price of $1.63 per share plus accrued dividends of $3,544 totaled
$601,210. The purchase was financed by a draw on the Company's line of credit.
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PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. RECONCILIATION OF EARNINGS PER SHARE:
FOR THE QUARTER ENDED JULY 31, 2001
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $ 211,783
Basic EPS
Income available to
common stockholders
211,783 1,818,793 $ .12
================
Effect of dilutive securities
Stock options
-- 17,789
---------------- ----------------
Diluted EPS
Income available to
common stockholders &
assumed conversions
$ 211,783 1,836,582 $ .12
================ ================ ================
FOR THE QUARTER ENDED JULY 31, 2000
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $ 83,213
Basic EPS
Income available to
common stockholders 83,213 1,767,339 $ .05
================
Effect of dilutive securities
Stock options -- 121,236
---------------- ----------------
Diluted EPS
Income available to
common stockholders &
assumed conversions $ 83,213 1,888,575 $ .04
================ ================ ================
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PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF EARNINGS PER SHARE (CONTINUED):
FOR THE NINE MONTHS ENDED JULY 31, 2001
INCOME SHARES PER-SHARE
(Numerator) Denominator) Amount
----------- ------------- ------
Net Income $ 221,956
Basic EPS
Income available to common stockholders 221,956 1,797,332 $ .12
==================
Effect of dilutive securities
Stock options -- 38,642
---------------- ----------------
Diluted EPS
Income (loss) available to
common stockholders & assumed
conversions $ 221,956 1,835,974 $ .12
================ ================ ==================
FOR THE NINE MONTHS ENDED JULY 31, 2000
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $ 169,724
Less: Preferred stock dividends 3,544
Preferred stock redemption
premiums 322,667
----------------
Basic EPS
Income (loss) available to common
stockholders (156,487) 1,761,974 $ (.09)
=================
Effect of dilutive securities
Stock options
Convertible preferred stock --
-- --
---------------- ----------------
Diluted EPS
Income (loss) available to
common stockholders & assumed
conversions $ (156,487) 1,761,974 $ (.09)
================= ================ =================
Convertible preferred stock and stock options had an antidilutive effect on
diluted earnings per share for the nine months ended July 31, 2000 and was not
used in the calculation of diluted earnings per share for this period.
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PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. SALE OF PRAB ROBOT PRODUCT LINE:
During March 2000, the Company entered into an agreement to sell the
remaining Prab Robot product line assets, including inventory, test equipment,
engineering drawings, job files, vendor information, customer lists, sales
history, sales aids, and five-year convenant not to compete for $5,000 cash, and
a non-interest bearing note of $15,000. The note receivable is payable in two
payments, $5,000 before June 30, 2000 and the balance due no later than March
31, 2001. The book value of the assets sold totaled approximately $0 due to
offsetting inventory reserves for lifo, obsolescence, and slow moving items.
In May, 2001, the Company and purchaser renegotiated the balance due of
$10,000. The purchaser is required to pay $5,000 and the company wrote off
$5,000 to bad debt in April, 2001.
7. LITIGATION SETTLEMENT:
During fiscal 2000, the Company became aware of a legal action arising
out of its disposal of waste at a local landfill. At the same time the Company
was offered a settlement agreement to prevent future legal action. During April
2000, the Company settled this matter for a total of $25,000, which was paid in
May 2000.
8. EMPLOYEE RELOCATION:
The Company, in the second quarter, offered its lone employee located
in Arizona the option of moving back to Kalamazoo, which the employee accepted.
The Company agreed to pay for three months of temporary living expenses, moving
expenses, and expenses related to selling the employee's home in Arizona.
Accordingly, $43,811 was included in selling, general, and administrative
expenses in the second quarter for fiscal year 2001.
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