UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2003
TRANSITION REPORT UNDER 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 August 31, 2003, the issuer had outstanding 1,418,610 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
July 31, 2003 (Unaudited)
and October 31, 2002
Consolidated Statement of Earnings
Three months ended July 31, 2003
and 2002 (Unaudited)
Nine months ended July 31, 2003
and 2002 (Unaudited)
Condensed Consolidated Statement of Cash Flows
Nine months ended July 31, 2003
and 2002 (Unaudited)
Notes to Condensed Consolidated Financial Statements
2
PRAB, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
July 31, October 31,
2003 2002
-------- -----------
Unaudited (Note)
ASSETS:
Current assets:
Cash $2,036,044 $1,240,017
Accounts receivable 1,614,246 2,030,476
Inventories (Note 2) 1,115,864 1,173,904
Note receivable 63,197 145,700
Other current assets 161,280 216,456
Deferred income taxes 316,259 316,259
--------- ---------
Total current assets 5,306,890 5,122,812
--------- ---------
Property, plant and equipment
(net of accumulated depreciation of
$3,563,863 and $3,446,848, respectively) 786,046 790,224
--------- ---------
Other Assets
Note receivable -- 34,707
Other assets 269 13,806
Unamortized pension cost 99,908 99,908
Deferred income taxes 153,298 185,620
--------- ---------
Total other assets 253,475 334,041
--------- ---------
Total assets $6,346,411 $6,247,077
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts and note payable $691,637 $735,109
Other current liabilities 1,568,140 1,180,168
--------- ---------
Total current liabilities 2,259,777 1,915,277
--------- ---------
Other non-current liabilities 463,799 512,756
--------- ---------
Stockholders' equity:
Common Stock 141,861 157,203
Additional paid-in capital 609,830 853,442
Retained earnings 3,170,357 3,107,612
Accumulated other comprehensive income (299,213) (299,213)
--------- ---------
Total stockholders' equity 3,622,835 3,819,044
--------- ---------
Total liabilities and stockholders' equity $6,346,411 $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 Nine Months Ended
July 31 July 31
----------------------------------------- ----------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net Sales $ 2,982,407 $ 3,722,596 $ 10,115,567 $ 9,619,304
Costs and expenses:
Cost of products sold 1,857,089 2,392,237 6,453,709 6,087,732
Selling, general and administrative
Expenses 1,177,028 1,131,631 3,570,427 3,197,623
---------------- ----------------- ------------------ ------------------
3,034,117 3,523,868 10,024,136 9,285,355
---------------- ----------------- ------------------- ------------------
Operating income (loss) (51,710) 198,728 91,431 333,949
------------------ ----------------- ------------------ ------------------
Other income (expenses):
Interest income 5,812 8,452 22,421 20,679
Gain (loss) on sale of property, plant and
Equipment (2,046) (1,065) (1,895) 6,960
Litigation settlement (Note 4) (25,000) (40,177) (25,000) (40,177)
------------------ ----------------- ------------------ ------------------
Income (loss) before income taxes (72,944) 165,938 86,957 321,411
Provision for income taxes (25,275) 59,389 24,212 117,510
----------------- ----------------- ------------------ ------------------
Net Income (Loss) $ (47,669) $ 106,549 $ 62,745 $ 203,901
================ ================= ================== ==================
Earnings (loss) per common share:
(Note 5)
Basic $ (.03) $ .06 $ .04 $ .12
================= ================= ================== ==================
Diluted $ (.03) $ .06 $ .04 $ .12
================= ================= ================== ==================
4
PRAB, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months ended
July 31,
------------------
2003 2002
---- ----
Net cash provided by (used in) operating activities $ 1,068,189 $ 843,699
------------- -------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (130,869) (96,986)
Proceeds from sale of property and equipment 451 10,573
Proceeds from note receivable 117,210 --
---------------- ---------------
Net cash provided by (used in) investing
Activities: (13,208) (86,413)
---------------- ----------------
Cash flows from financing activities:
Repurchase of common stock (258,954) (28,732)
---------------- ---------------
Net cash used in financing activities (258,954) (28,732)
---------------- ---------------
Net increase in cash 796,027 728,554
Cash - Beginning of year 1,240,017 621,795
---------------- --------------
Cash - End of third quarter $ 2,036,044 $ 1,350,349
================ ==============
5
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet at July 31, 2003, the
consolidated statement of earnings and the condensed consolidated statement of
cash flows for the three-month and nine-month periods ended July 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 July 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 July 31,
2003, is not necessarily indicative of the operating results for the full year.
2. INVENTORIES:
Inventories consist of the following:
July 31, October 31,
2003 2002
--------------------- ----------------------
Raw materials $ 587,308 $ 739,712
Work in process 198,645 114,171
Finished goods and display
units 329,911 320,021
----------------- ------------------
Total inventories $ 1,115,864 $ 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 July 31,
2003, $952,790 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 $47,210 for the quarter ended July 31, 2003.
6
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. LITIGATION SETTLEMENT:
During the third quarter of fiscal 2003, the Company reserved an
additional $25,000 to cover it's estimated share of costs pertaining to the
possibility of an additional consent decree, related to remediation of the
recently discovered groundwater impacts at the landfill.
7
5. RECONCILIATION OF EARNINGS PER SHARE:
FOR THE QUARTER ENDED JULY 31, 2003
-----------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net income (loss) $ (47,669)
Basic EPS
Income (loss) available to
Common stockholders (47,669) 1,427,951 $ (0.03)
---------------- ================
Effect of dilutive securities
Stock options -- 0
---------------- ----------------
Diluted EPS
Income (loss) available to
Common stockholders
& assumed conversions $ (47,669) 1,427,951 $ (0.03)
================ ================ ================
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 $ 0.06
================
Effect of dilutive securities
Stock options -- 18,235
---------------- ----------------
Diluted EPS
Income available to
Common stockholders
& assumed conversions $ 106,549 1,763,084 $ 0.06
================ ================ ================
Stock options had an antidilutive effect on diluted earnings per share for
the three months ended July 31, 2003 and was not used in the calculation of
diluted earnings per share for that period.
8
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF EARNINGS PER SHARE (CONTINUED):
FOR THE NINE MONTHS ENDED JULY 31, 2003
----------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
--------- ----------- ---------
Net Income $ 62,745
Basic EPS
Income available to common stockholders 62,745 1,521,848 $ 0.04
=================
Effect of dilutive securities
Stock options -- 29,155
---------------- ----------------
Diluted EPS
Income available to
Common stockholders &
Assumed conversions $ 62,745 1,551,003 $ 0.04
================ ================ =================
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 $ 0.12
=================
Effect of dilutive securities
Stock options -- 18,579
---------------- ----------------
Diluted EPS
Income available to
Common stockholders &
Assumed conversions $ 203,901 1,773,003 $ 0.12
================ ================ =================
9
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 retirement 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 nine months of 2003
resulted in operating activities providing net cash in the amount of $1,068,189.
The primary reason for the additional net cash was a decrease in accounts
receivable and increased customer deposits combined with the depreciation
expense and net income for the period. Net cash used in investing activities
resulted from capital expenditures partially offset from proceeds received on a
note receivable. The use of cash in financing activities was for the repurchase
of Prab Common Stock. The small share buyback program used $2,507 to acquire
2,203 shares of the Company's common stock. Another $1,364 was used to acquire
1,166 shares from a former employee in a private transaction. The balance of
$255,083 was used to repurchase 150,049 shares from several shareholders in a
private transaction.
In May 2003, the Company signed stock purchase agreements to purchase
162,549 shares of its common stock from several shareholders at a price of $1.70
per share. The shares purchased by the Company were returned to authorized but
10
unissued status. To date, all but 12,500 shares have been received and payment
has been remitted by the Company for all shares received. The stock purchase
agreements contain "Look-Back Event" and "Look-Back Value" provisions which
entitle the selling shareholders, for a period of twelve months, to the right to
additional payment for value above $1.70 per share that is received by the
remaining shareholders resulting from an event in which: (a) the Company enters
into and closes a business combination (such as a merger or consolidation) with
any other corporation or other type of business entity, which would result in
the shareholders of the Company immediately prior thereto owning less than 50%
of the voting securities of the Company or such controlling surviving entity
outstanding immediately after such business combination; or (b) the sale, lease,
exchange or other transfer of disposition by the Company of all or substantially
all of the Company's assets.
The Company will incur additional costs in the fourth quarter due to
receiving merger proposals from various groups. This will add additional costs
mainly in the areas of legal, valuation, accounting, and special committee fees.
It is estimated the additional costs could exceed $150,000 in the fourth quarter
and will directly impact cash and pretax income for the fourth quarter and year
to date. It is likely additional costs will be incurred in the first quarter of
fiscal year 2004 to complete the proposal evaluation process and it is estimated
first quarter costs could be as high as $50,000 or more.
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
July 31, 2003, $952,790 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 $47,210 for the quarter ended July 31, 2003.
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. 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 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.
Sales in the first nine months of 2003 were 5% higher than the first nine months
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 nine months
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. The sales for the Prab
Conveyor product line decreased 2% in the first nine months of 2003 versus the
same period a year ago. The Hapman Conveyor product line increased sales 15%
versus the same period a year ago.
New business order bookings have increased 19% in the first nine 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 $3,734,000
11
at the end of the third quarter ended July 31, 2003. Included in the backlog are
two orders the Company booked for new equipment totaling $1,681,000 to a single
customer, of which the majority of the two orders is scheduled for shipment in
fiscal year 2004.
The net income of $62,745 for the first nine months of fiscal year 2003
compares to $203,901 for the same period a year ago. Significant contributing
reasons for the decrease in net income were due to increased commission expense
due to the change in product mix sales combined with the decision to increase
advertising expenditures in fiscal year 2003.
Cost of sales compared to net sales increased to 64% in the first nine
months of 2003 from 63% in the first nine months of 2002. Selling, general and
administrative expenses were 35% of net sales in the first nine months of 2003
versus 33% in the same period a year ago. Warranty expense for the first nine
months of 2003 was $236,000 versus $239,000 for the same period a year ago.
Management expects end of year warranty expense to be at or below fiscal year
2002 levels.
The order backlog of $3,734,000 at the end of the second quarter ended
July 31, 2003 compares with $3,282,000 at the end of the previous quarter ended
April 30, 2003 and $2,573,000 at the end of the third quarter a year ago.
Item 3. Controls and Procedures.
The Company maintains disclosure controls and procedures
designed to ensure that the information the Company must disclose in its filings
with the Securities and Exchange Commission is recorded, processed, summarized
and reported on a timely basis. The Company's Chief Executive Officer and Chief
Financial Officer have reviewed and evaluated the Company's disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the
period covered by this report (the "Evaluation Date"). Based on such evaluation,
such officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in bringing to their attention
on a timely basis material information relating to the Company required to be
included in the Company's periodic filings under the Exchange Act.
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
12
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.
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.
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:
Index to Exhibits
-----------------
Exhibit No. Description of Exhibit
----------- ----------------------
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.
10.1 Employment Agreement between Prab, Inc. and Gary A. Herder dated
June 20, 2003.
13
Exhibit No. Description of Exhibit
----------- ----------------------
10.2 Employment Agreement between Prab, Inc. and Edward Thompson dated
June 20, 2003.
15
Not Applicable.
18
Not Applicable.
19
Not Applicable.
22
Not Applicable.
14
Not Applicable.
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer of Prab, Inc. (Section 302 of the Sarbanes-Oxley Act of
2002).
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer of Prab, Inc. (Section 302 of the Sarbanes-Oxley Act of
2002).
32.1 Certification of the Company's Chief Executive Officer, Gary A.
Herder, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 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 July 23, 2003, the Company filed a Form 8-K report for
the press release dated July 23, 2003, reporting the receipt
of a merger proposal from an investor group led by Gary A.
Herder, President and CEO of the Company.
14
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: September 12, 2003 By: /s/ Gary A. Herder
--------------------------------
Gary A. Herder
Its: Chairman, President and
Chief Executive Officer
Date: September 12, 2003 By: /s/ Robert W. Klinge
--------------------------------
Robert W. Klinge
Its: Chief Financial Officer
S-1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT ON FORM 10-QSB
For the quarterly period ended July 31, 2003
Index to Exhibits
&
Exhibits
PRAB, INC.
(a Michigan Corporation)
5944 East Kilgore Road, P.O. Box 2121
Kalamazoo, Michigan 49003
INDEX TO EXHIBITS
-----------------
Exhibit No. Description of Exhibit
----------- ----------------------
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.
10.1 Employment Agreement between Prab, Inc. and Gary A. Herder dated
June 20, 2003.
10.2 Employment Agreement between Prab, Inc. and Edward Thompson dated
June 20, 2003.
15 Not Applicable.
18 Not Applicable.
19 Not Applicable.
22 Not Applicable.
14 Not Applicable.
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer of Prab, Inc. (Section 302 of the Sarbanes-Oxley Act of
2002).
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer of Prab, Inc. (Section 302 of the Sarbanes-Oxley Act of
2002).
32.1 Certification of the Company's Chief Executive Officer, Gary A.
Herder, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Company's Chief Financial Officer, Robert W.
Klinge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
E-2