UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 Road, P.O. Box 2121 Kalamazoo, Michigan 49003
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code:
(269) 382-8200
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. YES |_| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 28, 2003, the issuer had outstanding 1,568,659 shares of
Common Stock, $.10 par value.
Transitional Small Business Disclosure Format (check one): YES |_| NO |X|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The following Financial Statements for Prab, Inc., a Michigan corporation
(the "Company") are attached hereto in response to Item 1:
Condensed Consolidated Balance Sheet
January 31, 2003 (Unaudited)
and October 31, 2002
Consolidated Statement of Earnings
Three months ended January 31, 2003
and 2002 (Unaudited)
Condensed Consolidated Statement of Cash Flows
Three months ended January 31, 2003
and 2002 (Unaudited)
Notes to Condensed Consolidated Financial Statements
2
PRAB, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
January 31, October 31,
2003 2002
---- ----
Unaudited (Note)
------------ -------------
ASSETS:
Current assets:
Cash $1,264,504 $1,240,017
Accounts receivable 1,961,764 2,030,476
Inventories (Note 2) 1,436,649 1,173,904
Note receivable 61,539 145,700
Other current assets 182,483 216,456
Deferred income taxes 316,259 316,259
----------- ------------
Total current assets $5,223,198 $5,122,812
----------- ------------
Property, plant and equipment
(net of accumulated depreciation of
$3,494,459 and $3,446,848, respectively) 752,756 790,224
----------- ------------
Other Assets
Note receivable 20,029 34,707
Other assets 22,684 13,806
Unamortized pension cost 99,908 99,908
Deferred income taxes 195,132 185,620
----------- ------------
Total other assets 337,753 334,041
----------- ------------
Total assets $6,313,707 $6,247,077
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts and note payable $ 783,543 $ 735,109
Other current liabilities 1,218,987 1,180,168
----------- ------------
Total current liabilities 2,002,530 1,915,277
----------- ------------
Other non-current liabilities 513,103 512,756
----------- ------------
Stockholders' equity:
Common Stock 156,982 157,203
Additional paid-in capital 851,156 853,442
Retained earnings 3,089,149 3,107,612
Accumulated other comprehensive income (299,213) (299,213)
----------- ------------
Total stockholders' equity 3,798,074 3,819,044
----------- ------------
Total liabilities and stockholders' equity $6,313,707 $6,247,077
=========== ============
Note: The balance sheet at October 31, 2002, has been taken from the
audited financial statements at that date and condensed.
3
PRAB, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended
January 31,
-----------------------
2003 2002
---- ----
Net Sales $3,296,316 $2,349,015
Costs and expenses:
Cost of products sold 2,240,033 1,423,768
Selling, general and
administrative expenses 1,104,957 930,823
----------- -----------
3,344,990 2,354,591
----------- -----------
Operating loss (48,674) (5,576)
----------- -----------
Other income:
Interest expense 8,733 8,968
Gain on sale of property, plant and
equipment -- 8,024
----------- -----------
Income (loss) before income taxes (39,941) 11,416
Provision for income taxes (21,478) 6,376
----------- -----------
Net Income (loss) $ (18,463) $ 5,040
=========== ===========
Earning (Loss) Per Common Share:
(Note 4)
Basic $ (0.01) $ 0.00
=========== ===========
Diluted $ (0.01) $ 0.00
=========== ===========
4
PRAB, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three months ended
January 31,
----------------------
2003 2002
---- ----
Net cash provided by (used in) operating activities $ (61,702) $377,285
----------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (10,143) (10,887)
Proceeds from sale of property and equipment -- 8,100
Proceeds from note receivable 98,839 --
----------- ---------
Net cash provided by (used in) investing
Activities: 88,696 ( 2,787)
----------- ---------
Cash flows from financing activities:
Repurchase of common stock (2,507) --
----------- ---------
Net cash used in financing activities (2,507) --
----------- ---------
Net increase in cash 24,487 374,498
Cash - Beginning of year 1,240,017 621,795
----------- ---------
Cash - End of first quarter $1,264,504 $996,293
=========== =========
5
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet at January 31, 2003, the
consolidated statement of earnings and the condensed consolidated statement of
cash flows for the three-month periods ended January 31, 2003 and 2002, 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 January 31, 2003, 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, 2002, annual
report to stockholders. The results of operations for the period ended January
31, 2003, is not necessarily indicative of the operating results for the full
year.
2. INVENTORIES:
Inventories consist of the following:
January 31, October 31,
2003 2002
------------- ------------
Raw materials $ 694,466 $ 739,712
Work in process 400,000 114,171
Finished goods and display
units 342,183 320,021
------------- ------------
Total inventories $ 1,436,649 $ 1,173,904
============= ============
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 January 31, 2003,
$977,477 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 letters of
credit totaling $22,523 for the quarter ended January 31, 2003.
6
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. RECONCILIATION OF EARNINGS PER SHARE:
FOR THE QUARTER ENDED JANUARY 31, 2003
--------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net loss $(18,463)
-----------
Basic EPS
Loss available to
Common stockholders (18,463) 1,570,452 $(.01)
======
Effect of dilutive securities
Stock options -- --
----------- -------------
Diluted EPS
Loss available to
Common stockholders &
assumed conversions $(18,463) 1,570,452 $(.01)
=========== ============= ======
FOR THE QUARTER ENDED JANUARY 31, 2002
--------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net Income $5,040
-----------
Basic EPS
Income available to
Common stockholders 5,040 1,768,793 $.00
====
Effect of dilutive securities
Stock options -- 18,437
----------- -------------
Diluted EPS
Income available to
Common stockholders &
assumed conversions $5,040 1,787,230 $.00
=========== ============= ====
Stock options had an antidilutive effect on diluted earnings per share for the three months ended January 31, 2003
and was not used in the calculation of diluted earnings per share for that period.
7
Item 2. Management's Discussion and Analysis or Plan of Operation.
INTRODUCTORY NOTE
This Periodic Report on Form 10-QSB may be deemed to contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Periodic Report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company's actual
financial condition, operating results and business performance may differ
materially from that projected or estimated by the Company in forward-looking
statements. The differences may be caused by a variety of factors, including but
not limited to adverse economic conditions, intense competition, including
intensification of price competition and entry of new competitors and products,
adverse federal, state and local government regulation, inadequate capital,
unexpected costs and operating deficits, increases in general and administrative
costs, lower sales and revenue than forecast, loss of customers, customer
returns of products sold to them by the Company, termination of contracts,
technological obsolescence of the Company's products, technical problems with
the Company's products, price increases for supplies and components, inability
to raise prices, failure to obtain new customers, litigation and administrative
proceedings involving the Company, the possible acquisition of new businesses
that result in operating losses or that do not perform as anticipated, resulting
in unanticipated losses, the possible fluctuation and volatility of the
Company's operating results, financial condition and stock price, losses
incurred in litigation and settling cases, dilution in the Company's ownership
of its business, adverse publicity and news coverage, inability to carry out
marketing and sales plans, loss or re tirement of key executives, changes in
interest rates, inflationary factors, and other specific risks that may be
alluded to in this Periodic Report or in other reports issued by the Company. In
addition, the business and operations of the Company are subject to substantial
risks, which increase the uncertainty inherent in the forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
Material Changes in Financial Condition. The first quarter of 2003 resulted
in operating activities using net cash in the amount of $61,702. The primary
reason for the use of net cash was an increase in inventory and a decrease in
accrued expenses combined with the net loss for the period. Net cash provided by
investing activities resulted from a payment received from a customer on the
note held by the Company for equipment shipped to the customer in fiscal year
2001, partially offset by capital expenditures of $10,143. The small share
buyback program resulted in the use of net cash from financing activities in the
first quarter of $2,507 to acquire 2,203 shares of the Company's common stock.
Inventory increased primarily from higher shipments scheduled for the start
of the second quarter versus the start of the first quarter, which has increased
work in process by $286,000 since October 31, 2002. October of 2002 was a very
large shipping month and combined with the low shipments scheduled for November
2002, it resulted in low inventory levels at the end of fiscal year 2002.
8
New equipment bookings in the first quarter started relatively low in
November, but improved to levels above our monthly booking goals for December
and January. Management remains optimistic at this time that sales will exceed
our operating plan. However, the threat of war with Iraq, and if an actual
conflict does take place, there is the possibility that bookings, sales and
earnings could be negatively affected.
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. Payment of the line of
credit is secured by liens on all of the assets of the Company. As of January
31, 2003, $977,477 was available to the Company under the line of credit and the
Company had borrowed $0 of such amount. The line of credit supports two letters
of credit that total $22,523. The Company believes this financing, combined with
cash generated by operations in 2003, will provide sufficient funds to finance
working capital requirements and capital additions.
Material Changes in Results of Operations. Sales in the first quarter of
2003 were 40% higher than the first quarter of 2002. Increased sales primarily
resulted from having more jobs in the backlog at the end of fiscal year 2002
requiring shipment in the first quarter versus the end of fiscal year 2001. A
single job amounting to $1,388,000 was part of the backlog at the end of fiscal
year 2001 and was not scheduled to be shipped until the third and fourth
quarters of 2002. Also, the USA economy was still rebounding from the September
11, 2001 terrorist attack on New York city which decreased our bookings and
sales in the comparable quarter a year ago.
New business order bookings have increased 17% in the first three months of
fiscal year 2003 compared to the same period a year ago, which has increased the
backlog of booked orders from $2,899,000 at October 31, 2002 to $2,918,000 at
the end of the first quarter ended January 31, 2003.
Cost of sales compared to net sales increased to 68% in the first quarter
of 2003 from 61% in the first quarter of 2002 primarily from competitive pricing
pressures, increased outsourcing, increased warranty expense, utilizing
employees for plant maintenance and under utilization of plant capacity.
Selling, general and administrative expenses were 34% of net sales in the first
quarter of 2003 versus 40% in the same period a year ago. The decreased SG&A
percentage resulted from the increase in sales versus a year ago. Warranty
expense for the first three months of 2003 was $112,000 versus $63,000 for the
same period a year ago.
The order backlog of $2,918,000 at the end of the first quarter ended
January 31, 2003 compares with $2,899,000 at the end of the previous quarter
ended October 31, 2002 and $3,441,000 at the end of the first quarter a year
ago.
9
Item 3. Controls and Procedures.
(a) Within the 90 days prior to the date of filing of this report, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's President and
Chief Executive Officer along with the Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14). Based upon
that evaluation, the Company's President and Chief Executive Officer along with
the Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in the Company's periodic SEC
filings.
The Company accounts for its inventory using a "periodic inventory system."
The Company calculates its actual inventory value once a year in conjunction
with its annual physical inventory count conducted prior to year-end.
Historically, an adjustment has been made to the Company's year-end financial
statements as a result of comparing the annual physical inventory valuation to
the Company's accounting records. During the last five fiscal years, this annual
adjustment has ranged from a pretax decrease in earnings of $108,000 to a pretax
increase in earnings of $263,000. Management continually evaluates its
procedures, and works to improve the recording of interim inventory
transactions; however, as long as the Company uses its existing inventory
valuation system, it is likely that annual accounting adjustments will need to
be made. These adjustments may be significant. Consequently, the possibility of
a year-end inventory adjustment should be taken into account when analyzing the
Company's interim financial statements. Management of the Company believes that
the benefit of maintaining an inventory valuation system or adopting procedures
that would produce more accurate interim financial statements (alternatives of
which include a system commonly referred to as a perpetual inventory system or
the possibility of taking complete physical inventory counts more often than
once a year) is outweighed by the significant costs of maintaining such a system
or procedures.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out this evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
10
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are attached hereto or incorporated herein
by reference:
Exhibit Description of Exhibit
Number ----------------------
- -------
2. Not Applicable.
3(i). Second Restated Articles of Incorporation of the Company, as
amended, incorporated herein by reference to Exhibit 3(i) of
the Company's Form 8-A/A (Amendment No.1) dated May 25, 1995.
3(ii). By-Laws of the Company as amended incorporated herein by
reference to Exhibit 3(ii) of the Company's Form 8-A/A
(Amendment No.1) dated May 25, 1995.
4. Not Applicable.
10a. Deferred Compensation and Salary Continuation Agreement
between the Company and Gary A. Herder dated September 13,
1976 incorporated by reference to Exhibit 19b. of the
Company's Form 10-K for the fiscal year ended October 31,
1987.
10b. Prab Robots, Inc. 1988 Stock Option Plan incorporated by
reference to Exhibit "C" of the Company's Definitive Proxy
Statement for the 1988 Annual Meeting.
10c. Prab, Inc. 1999 Stock Option Plan incorporated by reference
to the Appendix of the Company's Definitive Proxy Statement
for the 1999 Annual Meeting.
10d. Prab, Inc. 2000 Stock Option Plan incorporated by reference
to the Appendix of the Company's Definitive Proxy Statement
for the 2000 Annual Meeting.
11. Not Applicable.
15. Not Applicable.
11
18. Not Applicable.
19. Not Applicable.
22. Not Applicable.
23. Not Applicable.
24. Not Applicable.
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:
On January 29, 2003, the Company filed a Form 8-K report
for the press release dated January 29, 2003, reporting
fiscal year 2002 fourth quarter and year end results.
12
SIGNATURES
In accordance with 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: March 14, 2003 By: /S/ Gary A. Herder
------------------
Gary A. Herder
Its: Chairman, President and
Chief Executive Officer
Date: March 14, 2003 By: /S/ Robert W. Klinge
--------------------
Robert W. Klinge
Its: Chief Financial Officer
S-1
CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
S-2
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 14, 2003 /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-Q 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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
S-3
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 14, 2003 /s/ Robert W. Klinge
-----------------------------------------
Robert W. Klinge, Chief Financial Officer
S-4
INDEX TO EXHIBITS
Exhibit Description of Exhibit
Number ----------------------
- -------
2. Not Applicable.
3(i). Second Restated Articles of Incorporation of the Company, as
amended, incorporated herein by reference to Exhibit 3(i) of
the Company's Form 8-A/A (Amendment No.1) dated May 25, 1995.
3(ii). By-Laws of the Company as amended incorporated herein by
reference to Exhibit 3(ii) of the Company's Form 8-A/A
(Amendment No.1) dated May 25, 1995.
4. Not Applicable.
10a. Deferred Compensation and Salary Continuation Agreement
between the Company and Gary A. Herder dated September 13,
1976 incorporated by reference to Exhibit 19b. of the
Company's Form 10-K for the fiscal year ended October 31,
1987.
10b. Prab Robots, Inc. 1988 Stock Option Plan incorporated by
reference to Exhibit "C" of the Company's Definitive Proxy
Statement for the 1988 Annual Meeting.
10c. Prab, Inc. 1999 Stock Option Plan incorporated by reference
to the Appendix of the Company's Definitive Proxy Statement
for the 1999 Annual Meeting.
10d. Prab, Inc. 2000 Stock Option Plan incorporated by reference
to the Appendix of the Company's Definitive Proxy Statement
for the 2000 Annual Meeting.
11. Not Applicable.
15. Not Applicable.
18. Not Applicable.
19. Not Applicable.
22. Not Applicable.
23. Not Applicable.
24. Not Applicable.
99.1 Certification of the Company's Chief Executive Officer, Gary
A. Herder, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
E-1
99.2 Certification of the Company's Chief Financial Officer,
Robert W. Klinge, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
E-2