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, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
----------- -----------
Commission file number: 0-10187
----------------------------------
Prab, Inc.
---------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Michigan 38-1654849
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(269) 382-8200
- --------------------------------------------------------------------------------
(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 - 1,578,392 shares outstanding at August
30, 2002.
Transitional Small Business Disclosure Format
(Check One): Yes No X
--- ---
Page 1 of 17
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, 2002 (Unaudited)
October 31, 2001
Consolidated Statement of Earnings
Three months ended July 31, 2002
and 2001 (Unaudited)
Nine months ended July 31, 2002
and 2001 (Unaudited)
Condensed Consolidated Statement
of Cash Flows
Nine months ended July 31, 2002
and 2001 (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 $572,000 shipped to a single customer. Accounts receivable increased
due to $1,042,000 of higher shipments in the last two months of the quarter
versus the last two months of fiscal year 2001. The Company currently has a
customer owing $187,000 for equipment shipped in May of 2001 which remains
unpaid at this time due to the customer refinancing it's debt. We believe at
this time that the total amount is collectible once the refinancing is
completed. No reserves for bad debt have been established at this time. In the
event a portion or all of this receivable is not collected, it will have a
negative impact on the income of the Company.
Accounts payable increased primarily from inventory purchased to meet
the increased sales in the last two months.
Page 2 of 17
The Company has satisfied its liquidity requirements in the first nine
months of 2002 primarily through cash flow provided from operations, which
totaled $843,699. This primarily resulted from net income combined with
depreciation expense, increased accounts payables and customer deposits,
partially offset by an increase in accounts receivable.
Common stock and additional paid-in capital decrease resulted from the
Company repurchasing a total of 23,944 shares of the Company's common stock from
two unrelated persons. The price paid was $1.20 per share.
In August an additional 166,457 shares of the Company's common stock
were repurchased from the estate of a former officer of the Company, at a price
of $1.13 per share. The repurchased shares will be retired from circulation.
The capital goods industry remains sluggish at this time, however, July
was the largest new order bookings month in fiscal year 2002, but until we see
continued growth in the order activity, we remain cautious about a rebound in
the near future. The Company's agreement with the union expires on October 31,
2002, 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, 2002, $988,187 was available to the
Company under the line of credit and the Company had no borrowings on the line
of credit. The line of credit supports a letter of credit in the amount of
$11,813. The Company is debt free and cash has increased to $1,350,000 at the
end of the third quarter. The funds provided from operations combined with the
current cash balance should be sufficient to fund operations through the balance
of the fiscal year.
Material Changes in Results of Operations. Sales in the first nine
months of 2002 were 14% lower than the first nine months of 2001. Lower sales
are the result of a decreased backlog at the end of fiscal year 2001 combined
with significantly decreased order activity in the first nine months of 2002
versus a year ago primarily in the Prab Conveyor product line. New business
order bookings have decreased 19% in the first nine months of 2002 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 sales for the Prab Conveyor product line decreased 5% in the first
nine months of 2002 versus the same period a year ago. We believe much of the
decrease resulted from weakness in the capital goods sector, where most of these
products would be sold to suppliers for the automotive industry. The bulk
material handling systems primarily contributed to the decrease in sales during
the first nine months of the Hapman Conveyor product line,
Page 3 of 17
which decreased sales 24% versus the same period a year ago.
Costs of products sold were 63% in the first nine months of 2002 and
2001. Selling, general and administrative expenses were 33% in the first nine
months of 2002 and 34% in the same period a year ago. The annualized warranty
expense for fiscal 2002 based on the first nine months is $319,000 compared to
$277,000 actual expense in fiscal 2001. The increased warranty expense is
primarily due to three jobs requiring unexpectedly high warranty costs.
Lower interest expense resulted from being debt free the first nine
months of 2002.
The order backlog of $2,573,000 at the end of the third quarter ended
July 31, 2002 compares with $3,096,000 at the end of the previous quarter ended
April 30, 2002 and $3,878,000 at the end of the third quarter a year ago.
Item 3. Controls and Procedures
In the quarter ended July 31, 2002, the Company did not make any
significant changes in its internal controls or in other factors that could
significantly affect these controls.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are filed herewith:
Exhibit No. Description of Exhibit
99.1 Certification of the Company's Chief Executive
Officer, Gary A. Herder, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Company's Chief Financial
Officer, Robert W. Klinge, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(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 17
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, 2002 By: /S/ Gary A. Herder
------------------------
Gary A. Herder
Its: Chairman, President and
Chief Executive Officer
Date: September 11, 2002 By: /S/ Robert W. Klinge
-------------------------
Robert W. Klinge
Its: Chief Financial Officer
CERTIFICATIONS
I, Gary A. Herder, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Prab, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 11, 2002
/S/ Gary A. Herder
------------------------
Gary A. Herder
Chairman, President and
Chief Executive Officer
I, Robert W. Klinge, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Prab, Inc.;
Page 5 of 17
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 11, 2002
/S/ Robert W. Klinge
------------------------
Robert W. Klinge
Chief Financial Officer
Page 6 of 17
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report on Form 10-QSB
For the Quarter Ended July 31, 2002
----------------------------------
Financial Statements
Index to Exhibits
Exhibits
----------------------------------
PRAB, INC.
(A Michigan Corporation)
5944 E. Kilgore Road
P.O. Box 2121
Kalamazoo, Michigan 49003
Page 7 of 17
PRAB, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
July 31, October 31,
2002 2001
----------- -----------
Unaudited (Note)
ASSETS:
Current assets:
Cash $ 1,350,349 $ 621,795
Accounts Receivable 2,089,951 1,846,566
Inventories (Note 2) 1,438,363 1,504,818
Other current assets 158,931 245,321
Deferred income taxes 288,910 288,910
----------- -----------
Total current assets $ 5,326,504 $ 4,507,410
----------- -----------
Property, plant and equipment
(net of accumulated depreciation of
$3,929,298 and $3,804,298, respectively) 819,932 879,108
----------- -----------
Other Assets
Deferred charges and other assets 4,415 13,114
Unamortized pension cost 110,573 110,573
Deferred income taxes 133,310 228,058
----------- -----------
Total other assets 248,298 351,745
----------- -----------
Total assets $ 6,394,734 $ 5,738,263
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts and note payable $ 738,739 $ 312,183
Other current liabilities 1,193,457 1,139,713
----------- -----------
Total current liabilities 1,932,196 1,451,896
----------- -----------
Other non-current liabilities 227,144 226,140
----------- -----------
Stockholders' equity:
Common Stock 174,485 176,879
Additional paid-in capital 1,031,218 1,057,556
Retained earnings 3,165,248 2,961,349
Accumulated other comprehensive income (135,557) (135,557)
----------- -----------
Total stockholders' equity 4,235,394 4,060,227
----------- -----------
Total liabilities and stockholders' equity $ 6,394,734 $ 5,738,263
=========== ===========
Note: The balance sheet at October 31, 2001, has been taken from the audited
financial statements at that date and condensed.
Page 8 of 17
PRAB, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
-------------------------------- --------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net Sales $ 3,722,596 $ 4,429,152 $ 9,619,304 $ 11,223,968
Costs and expenses:
Cost of products sold 2,392,237 2,810,354 6,087,732 7,104,014
Selling, general and administrative
Expenses (Note 6) 1,131,631 1,298,924 3,197,623 3,786,721
------------ ------------ ------------ ------------
3,523,868 4,109,278 9,285,355 10,890,735
------------ ------------ ------------ ------------
Operating Income 198,728 319,874 333,949 333,233
------------ ------------ ------------ ------------
Other income (expenses):
Interest expense 8,452 5,510 20,679 (203)
Gain (loss) on sale of property, plant
and equipment (Note 5) (1,065) -- 6,960 --
Litigation settlement (Note 4) (40,177) -- (40,177) --
------------ ------------ ------------ ------------
Income before income taxes 165,938 325,384 321,411 333,030
Provision for income taxes 59,389 113,601 117,510 111,074
------------ ------------ ------------ ------------
Net Income $ 106,549 $ 211,783 $ 203,901 $ 221,956
============ ============ ============ ============
Earnings (loss) per common share:
(Note 7)
Basic $ .06 $ .12 $ .12 $ .12
============ ============ ============ ============
Diluted $ .06 $ .12 $ .12 $ .12
============ ============ ============ ============
Page 9 of 17
PRAB, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months ended
July 31,
-----------------
2002 2001
----------- -----------
Net cash provided by (used in) operating activities $ 843,699 $ 842,181
----------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (96,986) (80,092)
Proceeds from sale of property and equipment 10,573 0
----------- -----------
Net cash provided by (used in) investing
activities: (86,413) (80,092)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in short term borrowings 0 (425,000)
Proceeds from sale of common stock 0 32,500
Repurchase of stock (28,732) 0
----------- -----------
Net cash provided by (used in) financing activities (28,732) (392,500)
----------- -----------
Net increase (decrease) in cash 728,554 369,589
CASH -- Beginning of year 621,795 68,480
----------- -----------
CASH -- End of third quarter $ 1,350,349 $ 438,069
=========== ===========
Page 10 of 17
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet at July 31, 2002, the
consolidated statement of earnings and the condensed consolidated statement of
cash flows for the three-month and nine month periods ended July 31, 2002 and
2001, 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, 2002, 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, 2001, annual
report to stockholders. The results of operations for the period ended July 31,
2002, is not necessarily indicative of the operating results for the full year.
2. INVENTORIES:
Inventories consist of the following:
July October
31, 2002 31, 2001
------------- -------------
Raw materials $ 908,140 $ 1,036,253
Work in process 162,534 76,661
Finished goods and display
Units 367,689 391,904
------------- -------------
Total inventories $ 1,438,363 $ 1,504,818
============= =============
3. UNUSED LINE OF CREDIT:
The company has a $1,000,000 line of credit that is subject to a
borrowing formula based upon certain asset levels of the Company. As of July 31,
2002, $988,187 was available to the Company under the line of credit and the
Company had no borrowings on the line of credit. The line of credit supports a
letter of credit in the amount of $11,813 for the quarter ended July 31, 2002.
Page 11 of 17
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. LITIGATION SETTLEMENT:
During the third quarter of fiscal 2002, the Company reserved an
additional $40,177 to cover it's share of: (a) the State of Michigan's claim for
past costs incurred in a clean up, (b) the cost of construction of a landfill
cap and certain remedial systems to manage leachate, gas, and erosion and
runoff, (c) and anticipated future cost of monitoring, operation, and
maintenance of those systems. The Company may receive additional future charges
to cover operation, monitoring, and maintenance and for associated financial
assurance requirements. There may also be a future assessment for state
oversight costs not resolved in this consent decree.
5. GAIN (LOSS) ON SALE OF EQUIPMENT:
During fiscal year 2002 the Company sold miscellaneous hardware and
equipment no longer required. In addition, the Company received insurance
proceeds on the theft of two laptop computers. The combination of these
transactions resulted in a net gain of $6,960.
6. 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
expense, and expenses relating 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.
Page 12 of 17
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. RECONCILIATION OF EARNINGS PER SHARE:
FOR THE QUARTER ENDED JULY 31, 2002
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
---------------- -------------- ----------------
Net Income $ 106,549
Basic EPS
Income available to
common stockholders 106,549 1,744,849 $ .06
================
Effect of dilutive securities
Stock options -- 18,235
---------------- --------------
Diluted EPS
Income available to
common stockholders &
assumed conversions $ 106,549 1,763,084 $ .06
================ ============== ================
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
================ ============== ================
Page 13 of 17
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. RECONCILIATION OF EARNINGS PER SHARE (CONTINUED):
FOR THE NINE MONTHS ENDED JULY 31, 2002
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
---------------- -------------- ----------------
Net Income $ 203,901
Basic EPS
Income available to common
Stockholders 203,901 1,754,424 $ .12
================
Effect of dilutive securities
Stock options -- 18,579
---------------- --------------
Diluted EPS
Income (loss) available to
Common stockholders &
Assumed conversions $ 203,901 1,773,003 $ .12
================ ============== ================
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
================ ============== ================
Page 14 of 17
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
99.1 Certification of the Company's Chief Executive
Officer, Gary A. Herder, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Company's Chief Financial
Officer, Robert W. Klinge, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Page 15 of 17