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, 2004
[ ] 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
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 []
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE P
RECEDING 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, 2004, 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
January 31, 2004 (Unaudited)
and October 31, 2003
Consolidated Statement of Earnings
Three months ended January 31, 2004
and 2003 (Unaudited)
Condensed Consolidated Statement of Cash Flows
Three months ended January 31, 2004
and 2003 (Unaudited)
Notes to Condensed Consolidated Financial Statements
2
PRAB, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
January 31, October 31,
2004 2003
---- ----
Unaudited (Note)
ASSETS:
Current assets:
Cash $1,792,689 $1,556,474
Accounts and notes receivable, net of allowance
for doubtful accounts of $93,652 and
$83,567, respectively. 1,958,899 2,212,241
Inventories (Note 2) 1,241,473 1,429,904
Other current assets 183,766 182,919
Deferred income taxes 275,000 275,000
---------- ----------
Total current assets 5,451,827 5,656,538
---------- ----------
Property, plant and equipment
(net of accumulated depreciation of
$3,516,216 and $3,476,378, respectively) 773,506 766,235
---------- ----------
Other Assets
Other assets 24,287 13,089
Unamortized pension cost 156,939 156,939
Deferred income taxes 39,043 39,043
---------- ----------
Total other assets 220,269 209,071
---------- ----------
Total assets $ 6,445,602 $ 6,631,844
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts and note payable $670,912 $992,761
Other current liabilities 1,358,729 1,343,909
---------- ----------
Total current liabilities 2,029,641 2,336,670
---------- ----------
Other non-current liabilities 402,568 402,216
---------- ----------
Stockholders' equity:
Common Stock 141,861 141,861
Additional paid-in capital 609,830 609,830
Retained earnings 3,428,308 3,307,873
Accumulated other comprehensive income (166,606) (166,606)
---------- ----------
Total stockholders' equity 4,013,393 3,892,958
---------- ----------
Total liabilities and stockholders' equity $6,445,602 $6,631,844
========== ==========
Note: The balance sheet at October 31, 2003, 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,
------------------
2004 2003
---- ----
Net Sales $3,899,895 $3,296,316
Costs and expenses:
Cost of products sold 2,386,851 2,240,033
Selling, general and
administrative expenses 1,332,271 1,104,957
--------- ---------
3,719,122 3,344,990
--------- ---------
Operating income (loss) 180,773 (48,674)
--------- ---------
Other income:
Interest income 5,245 8,733
--------- ---------
Income (loss) before income taxes 186,018 (39,941)
Provision for income taxes 65,583 (21,478)
--------- ---------
Net Income (loss) $120,435 $(18,463)
======== ========
Earning (Loss) Per Common Share:
(Note 4)
Basic $0.08 $(0.01)
======== ========
Diluted $0.08 $(0.01)
======== ========
4
PRAB, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three months ended
January 31,
------------------
2004 2003
---- ----
Net cash provided by (used in) operating activities $283,325 $(61,702)
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (47,110) (10,143)
Proceeds from note receivable -- 98,839
-------- --------
Net cash provided by (used in) investing
activities: (47,110) 88,696
Cash flows from financing activities:
Repurchase of common stock -- (2,507)
-------- --------
Net cash used in financing activities -- (2,507)
-------- --------
Net increase in cash 236,215 24,487
Cash - Beginning of year 1,556,474 1,240,017
-------- --------
Cash - End of first quarter $1,792,689 $1,264,504
========== ==========
5
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet at January 31, 2004, the
consolidated statement of earnings and the condensed consolidated statement of
cash flows for the three-month periods ended January 31, 2004 and 2003, 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, 2004, 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 Annual Report on Form
10-KSB for the fiscal year ended October 31, 2003. The results of operations for
the period ended January 31, 2004, is not necessarily indicative of the
operating results for the full year.
2. INVENTORIES:
Inventories consist of the following:
January 31, October 31,
2003 2003
--------------------- ----------------------
Raw materials $ 685,467 $ 819,683
Work in process 275,113 359,349
Finished goods and display
units 280,893 250,872
----------------- ------------------
Total inventories $ 1,241,473 $ 1,429,904
================= ==================
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, 2004, $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, 2004.
6
PRAB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. RECONCILIATION OF EARNINGS PER SHARE:
FOR THE QUARTER ENDED JANUARY 31, 2004
--------------------------------------
INCOME SHARES PER-SHARE
(Numerator) (Denominator) Amount
------------------------------------------------------------
Net income $120,435
--------
Basic EPS
Income available to
common stockholders 120,435 1,418,610 $0.08
=====
Effect of dilutive securities
Stock options -- 83,644
------ ------
Diluted EPS
Income available to
common stockholders &
assumed conversions $120,435 1,502,254 $0.08
======== ========= =====
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 $(0.01)
======
Effect of dilutive securities
Stock options -- --
-------- --------
Diluted EPS
Loss available to
common stockholders &
assumed conversions $(18,463) 1,570,452 $(0.01)
======== ========= ======
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 retirement of key executives, changes in
interest rates, inflationary factors, the failure of the Company's shareholders
to approve the proposed merger, 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.
Recent Developments
On August 22, 2003, the Company announced that it had retained Lincoln
Partners, LLC to assist the Company in considering strategic alternatives,
including a possible sale of the Company. The Company further announced that it
was in discussions with various third parties regarding a possible acquisition
of the Company and that it had formed a special committee of independent
directors for the purpose of evaluating strategic alternatives and any offers
the Company may receive. There can be no assurance, however, that any
transaction will occur, and, if any transaction does occur, what the structure
or terms would be of such transaction.
On December 12, 2003, the Company entered into an Agreement and Plan of
8
Merger with Kalamazoo Acquisition Corporation ("KAC"), an entity formed by Gary
A. Herder, Chairman of the Board of Directors, President and Chief Executive
Officer of the Company, and Edward Thompson, Vice President of Operations of the
Company. The merger agreement provides that, at the closing of the merger, each
outstanding share of the Company's common stock (other than Company common stock
owned by KAC) will be converted into the right to receive $2.40 in cash.
On February 23, 2004, the Company filed a Schedule 13E-3 and
preliminary proxy materials with the SEC for the special meeting of the
shareholders to vote on the proposed transaction with KAC. Upon completion of
the SEC's review of the preliminary proxy materials, the Company will call a
special meeting of its shareholders to vote on the merger and will file with the
SEC and mail to the Company's shareholders definitive proxy materials. There can
be no assurance, however, that the merger will be consummated.
Material Changes in Financial Condition
The first quarter of 2004 resulted in operating activities providing
net cash in the amount of $283,325. The primary sources of net cash was a
decrease in accounts receivable and inventory, combined with the net profit for
the period. Investing activities used $47,000 of net cash primarily for the
purchase of machinery and equipment.
Inventory decreased primarily from shipping a large portion of the
balance of a large order to a single customer combined with lower shipments
scheduled for the first month of the second quarter. Accounts receivable
decreased primarily from payments received from a single customer totaling
$645,000 in the first quarter.
The Company incurred additional costs in the first quarter due to the
continuing process of reviewing merger proposals received from various groups
and to prepare the preliminary proxy to be filed with the SEC. This added
approximately $151,000 of additional expense in the first quarter mainly in the
areas of legal and valuation fees. It is likely additional costs will be
incurred in the second and third quarter of fiscal year 2004 to complete the
process and it is estimated these costs could exceed $100,000.
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, 2004, $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 2004, will provide sufficient
funds to finance working capital requirements and capital additions.
Material Changes in Results of Operations
Sales in the first quarter of 2004 were 18% higher than the first
quarter of 2003, reflecting the general improvement of the economy in the United
States combined with first quarter sales of $714,000 to a single customer.
9
New business order bookings have increased 13% in the first three
months of fiscal year 2004 compared to the same period a year ago. Prab conveyor
product line bookings have increased 29% versus a year ago and Hapman conveyor
product line bookings increased 3% over the same period a year ago.
Cost of sales compared to net sales decreased to 61% in the first
quarter of 2004 from 68% in the first quarter of 2003 primarily from lower
direct material costs as a percent of sales, decreased warranty expense, not
using employees on large plant maintenance projects, and combined with less
competitive pricing pressure. Selling, general and administrative expenses were
34% of net sales in the first quarter of 2004 and 2003. Warranty expense for the
first three months of 2004 was $67,000 versus $112,000 for the same period a
year ago. The warranty has returned to more of a normal range in the first
quarter of 2004 versus a year ago.
The order backlog of $2,581,000 at the end of the first quarter ended
January 31, 2004 compares with $2,720,000 at the end of the previous quarter
ended October 31, 2003 and $2,918,000 at the end of the first 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 six 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
10
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.
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:
Exhibit No. Description of Exhibit
- ---------- ------------------------------------------------------------
2 Agreement and Plan of Merger, dated as of December 12, 2003,
among Kalamazoo Acquisition Corporation, Kalamazoo Prab
Subsidiary Corporation and Prab, Inc., incorporated herein by
reference to Exhibit 2.1 of the Company's Form 8-K dated
December 15, 2003. The schedules to the Agreement and Plan of
Merger have been omitted in accordance with the rules of the
Commission. The Company agrees to furnish to the Commission,
upon request, a copy of each such schedule.
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.
11
Exhibit No. Description of Exhibit
- ---------- ------------------------------------------------------------
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 effective June 1, 2003, incorporated herein by reference
to Exhibit 10.1 of the Company's Form 8-K dated November 06, 2003.
10.2 Employment Agreement between Prab, Inc. and Edward Thompson
dated effective June 1, 2003, incorporated herein by reference
to Exhibit 10.2 of the Company's Form 8-K dated November 06, 2003.
10.3 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.
10.4 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.
10.5 Prab, Inc. 1999 Stock Option Plan incorporated by reference to
the Appendix of the Company's Definitive Proxy Statement for
the 1999 Annual Meeting.
10.6 Prab, Inc. 2000 Stock Option Plan incorporated by reference to
the Appendix of the Company's Definitive Proxy Statement for
the 2000 Annual Meeting.
15 Not Applicable.
18 Not Applicable.
19 Not Applicable.
20 Not Applicable.
22 Not Applicable.
23 Not Applicable.
24 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).
12
Exhibit No. Description of Exhibit
- ---------- ------------------------------------------------------------
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 November 6, 2003, the Company filed a Form 8-K report
announcing that the Company had entered into new employment agreements
with Gary A. Herder (Chief Executive Officer, President and a director
of the Company) and Edward Thompson (Vice President of Operations of
the Company), which were signed by Mr. Herder and Mr. Thompson on
November 3, 2003, to be effective as of June 1, 2003.
On December 15, 2003, the Company filed a Form 8-K report for
the press release dated December 15, 2003, announcing the execution of
the merger agreement with Kalamazoo Acquisition Corporation and
Kalamazoo Prab Subsidiary Corporation.
13
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 10, 2004 By: /s/ Gary A. Herder
--------------------------------
Gary A. Herder
Its: Chairman, President and
Chief Executive Officer
Date: March 10, 2004 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 January 31, 2004
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 Agreement and Plan of Merger, dated as of December 12, 2003,
among Kalamazoo Acquisition Corporation, Kalamazoo Prab
Subsidiary Corporation and Prab, Inc., incorporated herein
by reference to Exhibit 2.1 of the Company's Form 8-K dated
December 15, 2003. The schedules to the Agreement and Plan
of Merger have been omitted in accordance with the rules of
the Commission. The Company agrees to furnish to the
Commission, upon request, a copy of each such schedule.
3(i) Second Restated Articles of Incorporation of the
Company, as amended, incorporated herein by reference to
Exhibit 3(i) ofthe 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 effective June 1, 2003, incorporated herein by
reference to Exhibit 10.1 of the Company's Form 8-K dated
November 06, 2003.
10.2 Employment Agreement between Prab, Inc. and Edward Thompson
dated effective June 1, 2003, incorporated herein by
reference to Exhibit 10.2 of the Company's Form 8-K dated
November 06, 2003.
10.3 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.
10.4 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.
10.5 Prab, Inc. 1999 Stock Option Plan incorporated by reference
to the Appendix of the Company's Definitive Proxy Statement
for the 1999 Annual Meeting.
10.6 Prab, Inc. 2000 Stock Option Plan incorporated by reference
to the Appendix of the Company's Definitive Proxy Statement
for the 2000 Annual Meeting.
E-1
Exhibit No. Description of Exhibit
- ----------- ---------------------------------------
15 Not Applicable.
18 Not Applicable.
19 Not Applicable.
20 Not Applicable.
22 Not Applicable.
23 Not Applicable.
24 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