U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
[ ] 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.
(Name of Small Business Issuer 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: (616) 382-8200
--------------------
Securities Registered under Section 12(b) of the Act
None
Securities Registered under Section 12(g) of the Act
Common Stock, $.10 par value
(Title of Class)
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 _____
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $13,845,432.
The aggregate market value of Common Stock held by persons not
"affiliated" with the registrant, based on the average bid and ask price of
the Common Stock as of December 29, 1995, was $2,172,842. For purposes of this
computation, all executive officers, directors and 5% shareholders of the
Company have been assumed to be affiliates. Certain of such persons may
disclaim that they are affiliates of the Company.
As of December 31, 1995, the registrant had outstanding 2,647,860 shares
of Common Stock, $.10 Par Value.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K Into Which
Identity of Document Document is Incorporated
- -------------------- ------------------------
Definitive Proxy Statement with Part III
respect to the 1996 Annual Meeting
of Shareholders of the Company.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
<PAGE>
PART I
Item 1. Business
General
The Company is a Michigan corporation organized in 1961. The Company's
operations consist of two separate business segments: (1) the "Conveyor
Segment" designs and manufactures conveyors, metal scrap reclamation systems
and bulk material handling equipment; and (2) the "Robot Segment" sells parts
for Prab robots. The Company sells its products worldwide through a network of
factory sales engineers, manufacturers' agents, distributors and licensees.
These products are used in a variety of manufacturing processes to reduce
labor costs, increase productivity, improve quality and save materials and
energy resources. The market for the Company's hydraulic robots, parts,
service and training has been shrinking as robot users convert to electrical
robots and Management believes that this trend will continue. As a result of
such trend, the Company has exited the Unimate[TM] robot business and only
sells parts for Prab robots. The Company is focusing its efforts on its
original core Conveyor Segment business. See Note 10 of Notes to Financial
Statements under Item 7 for certain financial information regarding the
Company's two business segments.
Overview of Conveyor Segment
The Company designs and manufactures complete metal scrap reclamation
systems which it sells to die casting, metal stamping, general metal working,
and other industries. These systems reduce labor, manufacturing and
transportation costs associated with metal scrap disposal, reclaim cutting
fluids, and increase the value of metal scrap. The Company's scrap metal
reclamation systems are priced from $50,000 to $1,500,000 and range from a
single machine to a complex group of machines including conveyors, crushers,
centrifuges, and related equipment.
Reclamation systems are specifically designed for each customer and in
general are used to collect and transfer metal scrap, crush the scrap into a
more convenient chip size for handling, clean the scrap of fluids and other
impurities, and reclaim oil used as a machining coolant during the
manufacturing process.
The Company also designs and manufactures, to meet customer
specifications, for prices ranging from $3,000 to $100,000, stand-alone
conveyors for transporting aluminum, brass, cast iron and steel scrap. These
conveyors, include Harpoon[TM], drag, tubular, oscillating, screw, hinged
steel belt, magnetic, and pneumatic models.
The Company also sells conveyors under the trade name of Hapman[TM],
which are used primarily to transport bulk materials, such as powders and
chemicals.
These tubular, flexible screw (Helix[TM]) and pneumatic conveyors (also
known as "bulk material handling equipment") are used in the chemical,
pharmaceutical, food, plastics and other process industries and sell in the
price range of $2,000 to $100,000.
<PAGE>
Overview of Robot Segment
Prior to 1993, the Company manufactured and remanufactured a wide range
of hydraulically driven robots. The Company completed its withdrawal from the
Unimate[TM] robot business in the first quarter of fiscal year 1993. The
Company continues to sell parts for the Prab robot line only, but will no
longer manufacture a Prab robot.
In the future, the Company intends to focus its Robot Segment business
on selling existing inventory and supplying parts for its installed base of
robots sold under the Prab Robot name. The Company expects that its Robot
Segment business will not be significant in the future.
Sales
The Company's businesses are not seasonal; however, fluctuations in
sales are common due to large system orders, which is typical of the capital
equipment industry. Foreign sales and license fees accounted for 6%, 4% and 9%
of the Company's net sales for fiscal years 1995, 1994 and 1993, respectively.
See Note 10 of Notes to Financial Statements under Item 7. The Company's sales
are not dependent on one or a few major customers.
Backlog
The Company's backlog of orders as of October 31, 1995 and October 31,
1994 is set forth below. The Company believes all backlog orders outstanding
as of October 31, 1995 will be filled within one year.
<TABLE>
<CAPTION>
Increase
As of As of (Decrease)
October 31, October 31, From 1994
1995 1994 to 1995
---------- ---------- ----------
<S> <C> <C> <C>
Conveyor Segment $3,117,000 $2,242,000 39%
Robot Segment $ 35,000 $ 55,000 (36%)
---------- ----------
Totals $3,152,000 $2,297,000 37%
========== ==========
</TABLE>
Marketing and Distribution
The Company maintains demonstration equipment in its factory
applications laboratory for the conveyor business segment.
The Company has discontinued advertising and sales promotion activities
for the Robot Segment. The Conveyor Segment generates inquiries through
advertising, trade shows, trade releases, and customer referrals. Sales of all
the Company's products are made by factory sales engineers, manufacturing
agents, distributors and licensees.
<PAGE>
Engineering and Design Development
The Company's engineering and design personnel are combined into a
single department that develops and modifies its products to meet the
customers' specifications. All of the Company's products require a certain
amount of custom engineering or design work. The Company does not engage in
substantial research and development activities.
Manufacturing
The Company fabricates and assembles the primary components of its
Conveyor Segment products. It purchases most of the components of its robot
products from outside sources and fabricates other components. The principal
materials used in all of the Company's products are bar and sheet metal,
castings, machined parts, electrical components, completed controls and
finished goods. All of these materials are readily available from a variety of
sources.
Warranty expense for the past three years has been approximately
$139,000, $234,000, and $357,000 for 1993, 1994 and 1995, respectively.
None of the Company's principal products require government approval and
compliance with governmental regulations is not a significant factor in the
Company's businesses. Except for the landfill matter described in Item 3
below, the costs and effects of compliance with environmental laws is not a
significant factor in the Company's businesses.
Patents and Trademarks
The Company owns numerous domestic and foreign patents and has developed
technology and special skills relating to robots, metal scrap reclamation
systems, conveyors, and bulk material handling equipment. While the aggregate
protection afforded by these patents is of value, the Company does not
consider that the successful conduct of any material part of its businesses is
dependent upon such protection. The Company holds registered trademarks for
the names "Prab", "Hapman", "Harpoon", "Versatran" and "Helix".
Competition
The Company competes with many domestic and foreign firms, some of which
are large, diversified companies with financial, engineering, technical and
other resources greater than those of the Company. The Company's products
compete with similar products on the basis of price, design and quality.
Several large companies manufacture metal scrap reclamation systems and
conveyors and no reliable information is available as to the number of such
companies, the volume of their sales, or the total sales of any particular
product. However, the Company believes that it is one of the leading sellers
of large metal scrap reclamation systems.
The Company also believes it is a leading manufacturer of single unit
conveyors with its primary competitor being Mayfran International, a division
of Tomkins Industries, Inc. Competition for the Company's Hapman conveyor
products include a number of public and private companies.
<PAGE>
Employees
As of December 31, 1995, the Company employed 85 persons, 83 of which
persons were employed on a full-time basis. 42 of the employees are covered by
a collective bargaining agreement with the United Steelworkers of America,
AFL-CIO-CLC. The three-year contract with the Union expires on October 31,
1998.
Item 2. Properties
All of the Company's offices and manufacturing facilities are located in
Kalamazoo, Michigan, in a 72,000 square foot building.
The Company's facility has been used for conveyor manufacturing since
the early 1960's and robot manufacturing since 1969. The facility's office
space is more than adequate for the Company's present level of business, and
the manufacturing capacity is under-utilized with a single shift operation.
The facility is in good operating condition. The Company's line of credit
lender holds a mortgage on the facility to secure payment of the Company's
obligation to them.
Item 3. Legal Proceedings
In December, 1992, litigation was commenced against the Company in the
United States District Court for the Western District of Michigan entitled
Charter Township of Oshtemo, City of Kalamazoo, Kalamazoo County, and the
Upjohn Company v. American Cyanamid Company et al.
The Company is one of 38 defendants in this action. The litigation arises out
of the Company's disposal of waste at a local landfill which has been
subsequently identified as a "superfund site".
A private party has taken responsibility for the remediation of the
landfill site and for collection of the remediation costs from several hundred
other potentially responsible persons. In July, 1992, the Plaintiffs in this
litigation and over 200 potentially responsible persons entered into a consent
decree (which was subsequently approved by the federal district court),
pursuant to which such potentially responsible parties contributed various
amounts for the remediation of the landfill site in exchange for a release
from further liability. The Company and the other defendants in this
litigation chose not to enter into the consent decree, and the purpose of this
litigation is to recover remediation costs for the landfill from such
defendants. The Complaint filed in this matter requests that the Company and
other defendants be found jointly and severally liable for all remediation
costs. If the Company had entered into the consent decree, it would have been
required to pay approximately $280,000. During November of 1993, the private
party revised the amount it is seeking in damages to approximately $162,000.
The Company intends to vigorously defend the lawsuit and anticipates that the
litigation will extend over several years.
At this time, the Company cannot predict the outcome of the litigation
or the amount of any judgment against the Company (which judgment could be
minimal or exceed the amount described above) because of the following
factors: (i) the estimates of the total remediation costs for the landfill
vary widely (the leading potentially responsible party in this matter has
estimated the cleanup cost to be in a range or $9,000,000 to $44,000,000
depending upon the level of remediation to be required by the Environmental
Protection Agency, which Agency is engaged in a three-year study of the
landfill site); (ii) the volume of material delivered to the landfill site by
<PAGE>
the Company and other users of the landfill is in dispute; and (iii) it is not
clear that the materials delivered to the landfill site by the Company
contributed to the contamination of the site. For the reasons described above,
the Company believes that the extent of the liability estimated by the private
party and assigned to the Company is without sufficient basis to warrant such
a reserve on the books of the Company. The Company has made settlement offers
in the past in this matter ranging from $25,000, to $70,000. No offer is
currently outstanding. The Company has recorded, as of October 31, 1993,
$25,000 as an expense from litigation settlement and in other accrued
liabilities. Based on current information, the Company does not believe an
additional reserve is required in this matter.
The Company is subject to other claims and lawsuits arising in the
ordinary course of business. In the opinion of management, all such pending
claims are either adequately covered by insurance or, if not insured, will not
have a material adverse effect on the Company.
<PAGE>
PART II
Item 4. Market for Common Equity and Related Stockholder Matters
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
Item 5. Market for Common Equity and Related Stockholder Matters
The following table sets forth the range of high and low bid information
for the Company's two most recent fiscal years:
<TABLE>
<CAPTION>
1995
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Stock Price (bid)
High 1 1/2 2 1/4 1 7/8 1 3/4
Low 3/4 1 1 1
<CAPTION>
1994
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Stock Price (bid)
High 1/2 6/10 1 1/2 1 1/4
Low 1/4 1/4 1/4 3/4
</TABLE>
The Common Stock is reported in the "Pink Sheets" and is regularly
quoted by NASDAQ on its "over the counter bulletin board." The above bid and
ask prices are quotations reflecting inter-dealer prices, without retail
markup, markdown or commissions, and may not necessarily represent actual
transactions. At December 31, 1995, there were approximately 1,168 record
holders of the Company's common stock.
The Company has paid no dividends on its Common Stock. The Board of
Directors does not intend to pay cash dividends in the foreseeable future. The
payment of dividends in the future will be dependent upon the financial
condition, capital requirements, earnings of the Company and such other
factors as the Board of Directors may deem relevant.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
Overview of Recent Significant Events
Due to the strong economy and increased marketing activities in fiscal
1995, the Company was able to surpass fiscal 1994 record profits and record
its third consecutive year of profitability.
Sales increased 40 percent over fiscal 1994, and bookings increased 37
percent over fiscal 1994.
In September 1995, the Company paid all remaining debt due the State of
Michigan.
The Note receivable was collected in full with the last payment received
on schedule in October 1995.
Beginning November 1, 1995, the company will be obligated to pay a 5%
per annum dividend on its convertible preferred stock. If the dividends on the
convertible preferred stock are paid in cash, the total amount to be paid in
fiscal year 1995 will be $75,000. In addition, the company is obligated to pay
cash dividends on its non-convertible preferred stock in a total amount of
$21,000 for fiscal year 1995. See note 13 of Notes to Financial Statements
under item 7.
During the year ended October 31, 1995, the company's paid-in capital
balance exceeded its accumulated deficit. The company has elected to off-set
the paid-in capital and accumulated deficit balance and reclassify the
remaining amount as retained earnings as of October 31, 1995.
The Company has entered into negotiations with the State of Michigan
regarding the repurchase of certain outstanding common stock, convertible
preferred stock and non-convertible preferred stock of the Company, which
stock is currently owned by the State of Michigan Retirement Systems. The
Company cannot predict the outcome of such negotiations. In the event that the
Company repurchases its stock, it is anticipated that such repurchase will
require the company to borrow significant funds and use all of its cash not
necessary for current operations.
1995 Compared to 1994
Net sales increased 40% in 1995 to $13,845,000 from $9,866,000 in 1994.
Sales for the Conveyor Segment increased 44% as a result of increased
equipment and part sales. Sales for the Robot Segment decreased 32% primarily
from lower parts sales combined with lower service sales for the Company's
F-Series and P-Series robots, resulting from the Company farming out most
service work to an outside company.
The Conveyor Segment business is highly competitive and very sensitive
to price. The increase in net sales in 1995 was primarily due to increased
sales of steel belt conveyors, parts, screw conveyors, and tubular drag
conveyors. The actual sales fluctuation due to price is not known.
Cost of sales compared to net sales decreased to 61% in 1995 from 62% in
1994. Selling, general and administrative expenses were 30% of net sales in
1995 vs 32% in 1994. Decreased interest expense resulted from the early
retirement of all outstanding debt.
<PAGE>
Trends
Sales for the Company are expected to remain steady for the first half
of fiscal 1996, and will generally follow the national economic trends in the
second half.
Higher sales levels have required the Company to add employees which may
have an effect on profits in 1996.
Sales for the Robot Segment will likely continue to decrease in 1996 as
a result of customers' aging machines being replaced by new equipment. The
Company will continue to sell parts as long as it is profitable to do so.
The Company's business is not seasonal; however, monthly, quarterly and
annual fluctuations in sales are common due largely to the timing of the
receipt of large systems orders and the impact of scheduling requirements.
Liquidity and Financial Condition
Working capital at the end of 1995 was $2,220,000 compared to $1,931,000
at the end of last year. The current ratio was 2.1 to 1.0 and 2.1 to 1.0 for
1995 and 1994, respectively.
Cash increased from the prior year as a result of favorable terms on a
large job requiring significant payments by the customer prior to shipment.
Accounts receivable increased primarily from higher sales in the fourth
quarter of 1995 versus the same period a year ago. Inventories increased to
support the higher sales level. Other current assets decreased primarily as a
result of lower prepaid general insurance. Other assets decreased primarily
from amortization of all remaining deferred charges when the Company's
outstanding debt was paid in full.
Current and long term debt was eliminated due to the early retirement of
all debt owing to the State of Michigan. Accounts payable increased primarily
from material purchased to meet the higher shipping level combined with
increased overhead expenditures. Salaries, wages and vacation increased
primarily as a result of higher bonuses. Accrued commissions increased as a
result of higher sales in the fourth quarter of 1995 versus a year ago.
Deferred revenue - non-competition agreement decreased due to normal
amortization over three years.
Summary
Company sales should continue at the present level for the first half of
fiscal 1996 with additional personnel potentially affecting profits.
Elimination of debt in 1995 will have a positive impact on net income in 1996
and will partially offset the additional personnel expense. The Company's
backlog going into the first quarter of 1996 is higher than a year ago, and
provides the opportunity for continued profits into the first quarter and
beyond.
<PAGE>
Item 7. Financial Statements
(a) The following Financial Statements are attached hereto in response
to Item 7:
Item Independent Auditor's Report - Plante & Moran
Consolidated Balance Sheets - October 31, 1995 and October 31, 1994
Consolidated Statement of Income - Two Years ended October 31, 1995
Consolidated Statement of Stockholders' Equity - Two Years ended
October 31, 1995
Consolidated Statement of Cash Flows - Two Years ended October 31,
1995.
Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information under the caption "Election of Directors" contained in
the Company's Definitive Proxy Statement filed with the Commission, is
incorporated herein by reference.
Item 10. Executive Compensation
The information under the caption "Executive Compensation" (except the
information under the caption, "Certain Relationships and Related
Transactions"), contained in the Company's Definitive Proxy Statement filed
with the Commission, is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information under the caption "Security Ownership of Certain
Beneficial Owners and Management", contained in the Company's Definitive Proxy
Statement filed with the Commission, is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information under the caption "Certain Relationships and Related
Transactions", contained in the Company's Definitive Proxy Statement filed
with the Commission, is incorporated herein by reference.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) The following exhibits are attached hereto:
Exhibit
Number Description of Exhibit
- ------ ----------------------
3(i) Second Restated Articles of Incorporation 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.
3(ii) By-Laws of the Company as amended incorporated herein by reference to
Exhibit 4 of the Company's Form 8-A/A (Amendment No. 1) dated May 25,
1995.
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. Registration Rights and Shareholders Agreement, dated October 30, 1992,
between the Company and State Treasurer of the State of Michigan,
custodian for certain retirement systems incorporated herein by
reference to Exhibit 4e of the Company's Form 8-K dated November 13,
1992, as amended by First Amendment to Registration Rights and
Shareholders Agreement dated October, 1994 incorporated herein by
reference to Exhibit 4c. 2 of the Company's Form 10-KSB for the fiscal
year ended October 31, 1994.
21 List of Subsidiaries.
24a. Power of Attorney for Robert J. Skandalaris
24b. Power of Attorney for Robert J. Hamman
24c. Power of Attorney for Eric V. Brown, Sr.
24d. Power of Attorney for James H. Haas
27 Financial Data Schedule
<PAGE>
The Company will furnish copies of the above described Exhibits upon written
request and payment of a fee equal to $20.00 per request, plus $.20 per page
copied, plus postage. All requests for copies of Exhibits should be sent
to: Mr. Robert Klinge, Prab, Inc., 5944 E. Kilgore Road, P.O. Box 2121,
Kalamazoo, Michigan 49003.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRAB, INC.
By: /s/ John J. Wallace
-----------------------------
John J. Wallace,
Chairman of the Board
January 25, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ John J. Wallace Chairman of the January 25, 1996
- ------------------------ Board and Director
John J. Wallace
/s/ Gary A. Herder President, Principal January 25, 1996
- ------------------------ Executive Officer
Gary A. Herder Principal Financial
Officer, and Director
- ------------------------ Secretary and Director January 25, 1996
*Eric V. Brown, Sr.
- ------------------------ Director January 25, 1996
*Robert J. Hamman
- ------------------------ Director January 25, 1996
*James H. Haas
- ------------------------ Director January 25, 1996
*Robert J. Skandalaris
/s/ Robert W. Klinge Controller (Principal January 25, 1996
- ------------------------ Accountant)
Robert W. Klinge
*
By: /s/ John J. Wallace January 25, 1996
-------------------------
John J. Wallace
Attorney-in-Fact
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report on Form 10-KSB
For the Year Ended October 31, 1995
------------
Financial Statements
Index to Exhibits
Exhibits
------------
PRAB,INC.
(A Michigan Corporation)
5944 E. Kilgore Road
P.O. Box 2121
Kalamazoo, Michigan 49003
<PAGE>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
OCTOBER 31, 1995
----------------
CONTENTS
REPORT LETTER 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-22
<PAGE>
Certified Public
Accountants
Suite 700 Management Consultants
107 West Michigan Avenue 616-385-1858
PLANTE & MORAN, LLP Kalamazoo, Michigan 49007-3940 FAX 616-385-2936
===============================================================================
Independent Auditor's Report
To the Directors and Stockholders
Prab, Inc.
We have audited the accompanying consolidated balance sheet of Prab, Inc. and
subsidiary as of October 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended, as listed in the index at item 7(a). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Prab, Inc. and subsidiary at October 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ PLANTE & MORAN, LLP
Kalamazoo, Michigan
December 4, 1995
<PAGE>
<TABLE>
<CAPTION>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
OCTOBER 31
--------------------------
1995 1994
---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 323,297 $ 255,658
Accounts receivable, net of allowance for doubtful
accounts of $39,000 in 1995 and $18,400 in 1994 2,373,362 1,803,086
Inventories (Note 2) 1,134,356 889,843
Note receivable -- 171,524
Other current assets (Note 15) 76,285 183,262
Deferred income taxes (Note 8) 362,190 337,000
---------- -----------
Total current assets 4,269,490 3,640,373
PROPERTY, PLANT AND EQUIPMENT (Note 3) 961,299 894,112
OTHER ASSETS
Deferred charges, net of accumulated amortization
of $17,740 in 1994 -- 63,203
Other assets 17,961 18,105
---------- -----------
Total other assets 17,961 81,308
---------- -----------
Total assets $5,248,750 $ 4,615,793
========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
OCTOBER 31
--------------------------
1995 1994
---------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt - Related party (Note 4) $ -- $ 238,044
Accounts payable 980,067 598,426
Customer deposits 91,185 26,387
Salaries, wages and vacation 357,056 303,891
Commissions 283,222 173,420
Other accrued expenses (Note 14) 297,760 249,366
Income tax payable 25,190 --
Deferred revenue - Non-competition agreement (Note 16) 14,812 120,000
---------- -----------
Total current liabilities 2,049,292 1,709,534
LONG-TERM DEBT - RELATED PARTY (Note 4) -- 985,525
DEFERRED COMPENSATION (Note 6) 13,883 12,867
DEFERRED REVENUE - NON-COMPETITION AGREEMENT
(Note 16) -- 14,812
STOCKHOLDERS' EQUITY
Convertible preferred stock (Note 13) - $.75 par value:
Authorized 2,000,000 shares
Issued and outstanding 2,000,000 shares 1,500,000 1,500,000
Non-convertible preferred stock (Note 13) - $.50 par value:
Authorized 600,000 shares
Issued and outstanding 600,000 shares 300,000 300,000
Common stock - $.10 par value:
Authorized 7,000,000 shares
Issued and outstanding 2,647,860 and 2,602,860 respectively 264,786 260,286
Additional paid-in capital (net of deficit of $4,228,988 eliminated
October 31, 1995) 1,120,789 5,349,613
Retained earnings (accumulated deficit) (Note 1) -- (5,516,844)
---------- -----------
Total stockholders' equity 3,185,575 1,893,055
---------- -----------
Total liabilities and stockholders' equity $5,248,750 $ 4,615,793
========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED OCTOBER 31
-----------------------------
1995 1994
------------ -----------
<S> <C> <C>
NET SALES $ 13,845,432 $ 9,865,679
COST OF SALES 8,422,388 6,073,416
------------ -----------
GROSS PROFIT 5,423,044 3,792,263
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,197,743 3,201,667
------------ -----------
OPERATING INCOME 1,225,301 590,596
OTHER INCOME (EXPENSES)
Interest expense (83,332) (212,847)
Interest income 23,865 35,167
Gain on sale of property, plant and equipment 2,022 679
Non-competition agreement 120,000 120,000
------------ -----------
INCOME - Before income taxes and extraordinary item 1,287,856 533,595
INCOME TAX (RECOVERY) (Note 8) -- (337,000)
------------ -----------
INCOME - Before extraordinary item 1,287,856 870,595
EXTRAORDINARY ITEM - Gain on extinguishment
of debt (Note 12) -- 135,274
------------ -----------
NET INCOME $ 1,287,856 $ 1,005,869
============ ===========
EARNINGS PER COMMON SHARE
Primary:
Earnings before extraordinary item $ .27 $ .18
Extraordinary item -- .03
------------ -----------
Net earnings $ .27 $ .21
============ ===========
Fully diluted:
Earnings before extraordinary item $ .27 $ .18
Extraordinary item -- .03
------------ -----------
Net earnings $ .27 $ .21
============ ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED NON-CONVERTIBLE PREFERRED
STOCK STOCK
------------------------ --------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- ------- --------
<S> <C> <C> <C> <C>
BALANCE - November 1, 1993 2,000,000 $1,500,000 600,000 $300,000
7% non-convertible preferred stock
dividend (Note 13) -- -- -- --
Net income -- -- -- --
--------- ---------- ------- --------
BALANCE - October 31, 1994 2,000,000 1,500,000 600,000 300,000
7% non-convertible preferred stock
dividend (Note 13) -- -- -- --
Exercise of 45,000 common stock options
(Note 7) -- -- -- --
Net income -- -- -- --
Corporate recapitalization (Note 1) -- -- -- --
--------- ---------- ------- --------
BALANCE - October 31, 1995 2,000,000 $1,500,000 600,000 $300,000
========= ========== ======= ========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
[TABLE BROKEN / TOO WIDE / CONTINUED ON NEXT PAGE]
<PAGE>
<TABLE>
<CAPTION>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
RETAINED
COMMON STOCK EARNINGS TOTAL
---------------------- ADDITIONAL (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT) EQUITY
--------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - November 1, 1993 2,602,860 $260,286 $ 5,370,613 $(6,522,713) $ 908,186
7% non-convertible preferred stock
dividend (Note 13) -- -- (21,000) -- (21,000)
Net income -- -- -- 1,005,869 1,005,869
--------- -------- ----------- ----------- -----------
BALANCE - October 31, 1994 2,602,860 260,286 5,349,613 (5,516,844) 1,893,055
7% non-convertible preferred stock
dividend (Note 13) -- -- (21,000) -- (21,000)
Exercise of 45,000 common stock options
(Note 7) 45,000 4,500 21,164 -- 25,664
Net income -- -- -- 1,287,856 1,287,856
Corporate recapitalization (Note 1) -- -- (4,228,988) 4,228,988 --
--------- -------- ----------- ----------- -----------
BALANCE - October 31, 1995 2,647,860 $264,786 $ 1,120,789 $ -- $ 3,185,575
========= ======== =========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,287,856 $ 1,005,869
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 221,562 176,434
Bad debt expense (recovery) 19,714 (9,746)
Reduction of assets to market value -- 74,324
Gain on sale of assets (2,022) (679)
Non-competition agreement (120,000) (120,000)
Deferred taxes (25,190) (337,000)
Extraordinary item - Gain on extinguishment
of debt -- (135,274)
(Increase) decrease in assets:
Accounts receivable (589,990) (773,583)
Inventories (244,513) 19,966
Other current and non-current assets 107,121 153,322
Increase (decrease) in liabilities:
Accounts payable 381,641 405,605
Customer deposits 64,798 15,295
Accrued expenses 211,361 249,389
Income taxes payable 25,190 --
Deferred compensation 1,016 978
----------- -----------
Net cash provided by operating activities 1,338,544 724,900
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (225,546) (106,249)
Proceeds from note receivable 171,524 218,152
Proceeds from sale of equipment 2,022 5,064
----------- -----------
Net cash provided by (used in) investing (52,000) 116,967
activities
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRAB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
YEAR ENDED OCTOBER 31
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (1,223,569) (937,756)
Proceeds from exercise of common stock options 25,664 --
Payment of dividends (21,000) (21,000)
----------- -----------
Net cash used in financing activities (1,218,905) (958,756)
----------- -----------
NET INCREASE (DECREASE) IN CASH 67,639 (116,889)
CASH - Beginning of year 255,658 372,547
----------- -----------
CASH - End of year $ 323,297 $ 255,658
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged in the manufacturing of metal scrap
reclamation systems, and conveyor equipment. The Company is also
engaged in the manufacturing, service and sales of replacement parts
for robots and automation systems. Major customers are in the metal
working, chemical, pharmaceutical, and food processing industries
throughout the United States, Canada and Mexico.
Basis of Consolidation - Effective November 1, 1988, the Company
formed a wholly-owned subsidiary, Prab Limited, to conduct certain of
its operations. The subsidiary is essentially inactive at the present
time. The consolidated financial statements include the accounts of
Prab, Inc. and its subsidiary, after elimination of all significant
intercompany transactions and accounts.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out (LIFO) method.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. Costs for maintenance and repairs are charged to
expense when incurred. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets.
Warranties - The Company's products are generally under warranty
against defects in material and workmanship for a period of one year.
The Company has established a reserve of $110,432 and $68,027 at
October 31, 1995 and 1994, respectively, for these anticipated future
warranty costs.
Net Income Per Common and Common Equivalent Share - Per share amounts
are based upon the weighted average number of common and dilutive
common equivalent shares outstanding during the respective periods,
as follows: 1995 - 4,737,298 and 4,744,783 for primary and fully
diluted earnings per share, respectively; 1994 - 4,626,053 and
4,654,440 for primary and fully diluted earnings per share,
respectively.
Deferred Charges - Deferred charges include $80,943 in costs related
to the restructuring of debt on October 30, 1992. These costs were
amortized according to the effective interest method over a period of
7 years. During the year ended October 31, 1995, the Company paid off
the debt related to these deferred charges and accordingly has
written off these amounts. Amortization related to these deferred
charges totaled $63,203 for the year ended October 31, 1995 and
$9,307 for the year ended October 31, 1994.
7
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Deferred Revenue - Non-competition Agreement - On December 15, 1992,
the Company entered into an agreement not to compete with a
competitor for a period of three years. The covenant is being
amortized on the straight-line basis over thirty-six months. Included
in the determination of net income for the years ended October 31,
1995 and 1994 is $120,000 per year resulting from amortization of the
covenant.
Income Taxes - The Company accounts for income taxes in accordance
with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes".
Elimination of Deficit in Retained Earnings - On October 31, 1995 the
Company eliminated the earnings deficit amount on its balance sheet
through a quasi-reorganization in accordance with the state laws of
Michigan. The capital surplus (additional paid-in capital) was used
to eliminate in its entirety a deficit of $4,228,988 in the balance
sheet under stockholders' equity. Retained earnings shown on the
balance sheet in future years reflects earnings beginning November 1,
1995.
8
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $ 892,152 $ 452,813
Work in process 141,413 130,817
Finished goods and display units 100,791 306,213
---------- ----------
Total inventories $1,134,356 $ 889,843
========== ==========
</TABLE>
Inventories are stated at the lower of cost, determined by the LIFO
method, or market.
If the FIFO method had been used for the entire consolidated group,
inventories, after an adjustment to the lower of cost or market,
would have been approximately $1,450,000 and $1,150,000 at October
31, 1995 and 1994, respectively.
Inventory has been written down to estimated net realizable value,
and results of operations for 1994 include a corresponding charge of
approximately $74,000 which represents the excess of LIFO cost over
market.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Cost of property, plant and equipment and depreciable lives are
summarized as follows:
<TABLE>
<CAPTION>
DEPRECIABLE
1995 1994 LIFE-YEARS
---------- ---------- -----------
<S> <C> <C> <C>
Land $ 28,939 $ 28,939 -
Buildings and improvements 1,655,350 1,598,547 10 - 30
Machinery and equipment 2,330,419 2,179,944 3 - 10
---------- ----------
Total cost 4,014,708 3,807,430
Accumulated depreciation 3,053,409 2,913,318
---------- ----------
Net carrying amount $ 961,299 $ 894,112
========== ==========
</TABLE>
Depreciation expense aggregated $158,359 and $166,106 at October 31,
1995 and 1994, respectively.
9
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following owed to a related party
that is a major stockholder of the Company:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Term note payable collateralized by
essentially all assets of the Company,
bearing interest at 10%, due in quarterly
payments from February 1, 1993 through
August 1, 1999 of $85,486 including
interest, with the remaining balance
initially due October 31, 1999. $ -- $1,223,569
Less current portion -- 238,044
---------- ----------
Long-term portion $ -- $ 985,525
========== ==========
</TABLE>
Included in interest expense are the following amounts attributable
to the related party: $82,994 in 1995 and $187,853 in 1994.
NOTE 5 - NOTE PAYABLE - BANK
At October 31, 1995, the Company has available a $500,000 line of
credit under a commercial revolving note, which expires February
1996.
No balance was outstanding on the line of credit at October 31, 1995
and 1994.
10
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 6 - PENSION AND PROFIT SHARING PLANS
At October 31, 1995 and 1994, the Company is participating in a
defined benefit plan for their collective bargaining unit. The
following table sets forth the funded status of the Company's defined
benefit pension plan and amounts recognized in the balance sheet at
October 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation including vested benefits of
$592,292 and $551,355 in 1995 and
1994, respectively $ 669,328 $ 645,464
========= =========
Projected benefit obligation for service
rendered to date $(724,637) $(645,464)
Plan assets at fair value - Primarily non-
government obligations and listed stock 689,831 610,000
--------- ---------
Projected benefit obligation in excess of plan
assets (34,806) (35,464)
Unrecognized net gain from experience
different than that assumed or change in
assumptions (59,326) (40,434)
Unrecognized prior service cost due to plan
amendment being amortized over 15 years 114,770 65,397
Unrecognized net obligation at November 1,
1987 being recognized over 15 years (28,174) (32,248)
--------- ---------
Accrued pension cost included in other
liabilities $ (7,536) $ (42,749)
========= =========
</TABLE>
11
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 6 - PENSION AND PROFIT SHARING PLANS (Continued)
Pension expense included the following components:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Service cost - Benefits earned during the year $ 18,787 $ 16,412
Interest cost on projected benefit obligation 43,103 41,680
Actual return on plan assets (48,731) (48,655)
Net amortization and deferral 1,862 (1,045)
-------- --------
Net pension expense $ 15,021 $ 8,392
======== ========
</TABLE>
The discount rate used in determining the actuarial present value of
the projected benefit obligation was 7% for 1995 and 1994. The
expected long-term rate of return on assets was 8% for 1995 and 1994.
The increase in unrecognized prior service cost relates to a plan
amendment which increases participant benefits during 1995, 1996 and
1997.
The Company contributed $50,234 in 1995 and $47,935 in 1994 to the
pension plan for hourly employees covered by its collective
bargaining agreement. The Company's policy is to make annual
contributions as required by applicable regulations.
The Company's salaried employees profit sharing plan is a combination
profit sharing and 401(k) plan. The profit sharing plan covers
substantially all employees of the Company other than those covered
by the collective bargaining agreement. The profit sharing plan
provides for an annual contribution of not less than 5% of the
Company's income before income taxes, proceeds from life insurance
policies and gain on sale of capital assets. Contributions made by
the Company in accordance with the profit sharing plan were
approximately $66,000 and $35,000 in 1995 and 1994, respectively.
Employer matching contributions are made to the 401(k) plan in an
amount equal to 25% of the lessor of: the amount designated by the
employee for withholding and contribution to the 401(k) plan; or 4%
of the employee's total compensation. In addition, the Company will
make a contribution equal to 1% of each eligible employee's
compensation who is employed on the last day of the plan year and who
performs 1,000 or more hours of service for the Company during the
plan year. The cost of this plan was $12,361 and $12,757 in 1995 and
1994, respectively.
During the year ended October 31, 1993, the Company adopted a union
401(k) plan. The plan covers all employees of the Company covered by
the collective bargaining agreement. Participation in the 401(k) plan
is optional. Employer matching contributions are made to the 401(k)
plan in an amount equal to 25% of the lessor of: the amount
designated by the employee for withholding and contribution to the
401(k) plan; or 4% of employee's total compensation. Contributions to
the plan totaled $10,135 and $7,793 for the years ended October 31,
1995 and 1994.
12
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 6 - PENSION AND PROFIT SHARING PLANS (Continued)
The Company has entered into deferred compensation and salary
continuation agreements with a key employee calling for periodic
payments totaling $48,000 at retirement or death of the employee. The
normal retirement date occurs during 2012. The liability has been
recorded using the present value method.
NOTE 7 - STOCK OPTION PLAN
The Company maintains qualified and nonqualified stock option plans
that provide for granting of options on common stock by the Board of
Directors to officers and key employees. 339,000 shares remain
reserved for issuance under the plans.
Transactions involving the plans for years ended October 31, are
summarized as follows:
<TABLE>
<CAPTION>
OPTION SHARES
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
OUTSTANDING - Beginning of year 282,500 192,500
Granted -- 90,000
Canceled 30,000 --
Exercised (45,000 shares at $.5703) 45,000 --
----------- -----------
OUTSTANDING - End of year 207,500 282,500
=========== ===========
ELIGIBLE, for exercise at end of year 207,500 282,500
=========== ===========
</TABLE>
Option prices for options outstanding at year-end were $.5703 -
$2.6125 for 1995 and 1994.
The stock options are exercisable from the date issued and expire on
various dates through 2004. None of the options granted involved
compensation expense.
13
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 8 - INCOME TAXES
A reconciliation of income tax expense at the statutory rate to
income tax expense at the Company's effective rate is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Taxes computed at statutory rates $ 437,871 $ 181,422
Benefit of net operating loss carryforward (437,871) (181,422)
Benefit of change in valuation allowance -- (337,000)
--------- ---------
Provision (recovery) for income taxes $ -- $(337,000)
========= =========
</TABLE>
The Company has a net operating loss carryforward of approximately
$6,800,000 for financial reporting purposes and $6,150,000 for tax
purposes which expires on various dates through fiscal year ended
2008. Differences between book income and taxable income creating
deferred tax assets relate to temporary differences for deductibility
of reserves, payments of certain accruals, and net operating losses.
Differences between book income and taxable income creating deferred
tax liabilities relate to temporary differences in deductibility of
depreciation. In addition, the Company has unused investment and
research and development credit carryovers approximating $62,000
(expiring at various dates from 1997 through 2001) which are
available to reduce future federal tax liabilities. A valuation
allowance equal to the tax effect on cumulative temporary
differences, net operating losses and tax credits of $1,963,810 has
been used to reduce the deferred tax benefit to $362,190, which is
the amount of deferred tax benefit reasonably expected to be
recognized as of October 31, 1995. The increase in deferred taxes
from 1994 to 1995 is related to the payment by the Company of
alternative minimum tax of approximately $25,000.
14
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 8 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Total deferred tax assets $ 2,382,000 $ 2,820,000
Total deferred tax liabilities (56,000) (64,000)
Effect of valuation allowance on realization
of temporary differences, tax credits,
and net operating losses (1,963,810) (2,419,000)
----------- -----------
Net deferred tax benefit $ 362,190 $ 337,000
=========== ===========
</TABLE>
Under the Internal Revenue Code, a change in ownership in excess of
50 percentage points limits or eliminates the right to use the net
operating loss carryforward as an offset to taxable income and unused
credit carryovers to reduce federal tax liabilities. On October 30,
1992, the Company undertook a restructuring which involved a change
in ownership. While the Company believes it is not subject to any
such limitation as a result of this restructuring, any additional
ownership change or an adverse decision by the Internal Revenue
Service regarding the restructuring could result in a limitation.
NOTE 9 - RELATED PARTY TRANSACTIONS
A director of the Company is affiliated in an "of counsel" capacity
with the law firm which has been general legal counsel to the Company
since 1961. The Company incurred legal fees of $93,671 and $25,244 to
the law firm in 1995 and 1994, respectively.
15
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 10 - BUSINESS SEGMENTS
The Company has identified its two business segments as shown below.
Intersegment sales are insignificant.
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales:
Conveyors and metal scrap reclamation systems $ 13,520 $ 9,389
Robots and automation systems 325 477
-------- --------
Total net sales $ 13,845 $ 9,866
======== ========
Operating profit:
Robots and automation systems $ 196 $ 182
Conveyors and metal scrap reclamation systems 1,301 620
-------- --------
1,497 802
General corporate expenses (270) (220)
Interest expense - Net (59) (178)
Other income 120 130
-------- --------
Income before income taxes and
extraordinary item $ 1,288 $ 534
======== ========
Identifiable assets:
Robots and automation systems $ 58 $ 252
Conveyors and metal scrap reclamation systems 4,411 3,506
-------- --------
4,469 3,758
Corporate assets 780 858
-------- --------
Total assets $ 5,249 $ 4,616
======== ========
</TABLE>
16
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 10 - BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------
1995 1994
-------- --------
<S> <C> <C>
Depreciation:
Robots and automation systems $ 1 $ 3
Conveyors and metal scrap reclamation systems 157 163
-------- --------
Total depreciation $ 158 $ 166
======== ========
Capital expenditures:
Robots and automation systems $ -- $ --
Conveyors and metal scrap reclamation systems 226 106
-------- --------
Total capital expenditures $ 226 $ 106
======== ========
</TABLE>
Export sales, the majority of which were made in Canada and Europe,
were as follows for fiscal years ended October 31: 1995 - $846,957;
1994 - $411,551.
17
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 11 - CONTINGENCIES
The Company is involved in a legal action arising out of its disposal
of waste at a local landfill which has been subsequently identified
as a "superfund site". A private party has taken responsibility for
the remediation of the landfill site and for collection of the
remediation costs from several hundred other potentially responsible
persons. The private party originally advised the Company that its
share of the remediation costs was approximately $280,000. The
Company is contesting this claim. A lawsuit has been filed against
the Company, which names them as joint and severally liable, with a
number of other potential defendants. During the month of November
1993, the private party contacted the Company and revised the amount
it is seeking in damages to approximately $162,000. The Company
intends to vigorously defend the lawsuit and anticipates that the
litigation will extend over several years. At this time, the Company
cannot predict the outcome of the litigation or the amount of any
award against the Company (which award could be minimal or exceed the
amount described above) because of the following factors: (i) the
estimates of the total remediation costs for the landfill vary widely
(the leading potentially responsible party in this matter has
estimated the cleanup cost to be $42,400,000, while the Environmental
Protection Agency has established a preliminary estimate of
$16,400,000); (ii) the volume of material delivered to the landfill
site by the Company and other users of the landfill is in dispute;
(iii) it is not clear that the materials delivered to the landfill
site by the Company contributed to the contamination of the site. For
the reasons described above, the Company believes that the extent of
the liability estimated by the private party and assigned to the
Company is without sufficient basis to warrant such a reserve on the
books of the Company.
In order to reach an agreement, the Company has estimated what it
feels is its actual liability related to this matter. Based on this
estimate, in November of 1993, the Company offered to settle this
disagreement for $25,000 in cash or $35,000 in equipment or services
under a payment in-kind arrangement. The Company estimates the net
cost of either offer would approximate $25,000 and therefore has
recorded this amount as an expense in litigation settlement and in
other accrued liabilities.
18
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 12 - CASH FLOWS
Cash paid during the years ended October 31, 1995 and 1994 for
interest approximated interest expense. No significant amounts were
paid for income taxes during the years ended October 31, 1995 and
1994.
Significant noncash investing and financing activities are as
follows:
During June 1994, the Company paid to Westinghouse Electric
Corporation $100,000 as payment in full on a promissory note
dated January 21, 1991 with an outstanding balance of $235,274,
recognizing an extraordinary gain on debt extinguishment of
$135,274 which is net of $0 in income taxes.
19
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 13 - PREFERRED STOCK
Convertible Preferred Stock
The convertible preferred stock is entitled to quarterly dividends as
follows:
<TABLE>
<S> <C> <C>
November 1, 1995 to October 31, 1996 5% per annum ($.0375 per share)
November 1, 1996 to October 31, 1997 6% per annum ($.0450 per share)
November 1, 1997 to October 31, 1998 7% per annum ($.0525 per share)
November 1, 1998 and thereafter 8% per annum ($.0600 per share)
</TABLE>
The Company has the option to pay the dividend in cash or common
stock. The Company's ability to pay cash dividends is subject to
Michigan statutes. If a dividend is paid in common stock, the Company
would have an obligation to register the stock.
The Company has the right to redeem the convertible preferred stock
at $.75 per share provided all of the non-convertible preferred stock
has been redeemed. Upon the Company's offer to redeem the convertible
preferred stock, the preferred stockholder has the right to convert
these shares to common. Additionally, the holder of the convertible
preferred stock has the right to convert all, or any portion, of the
convertible preferred stock to common stock on a one to one ratio.
After November 1, 1994, the convertible preferred stockholder will
have a 60 day period after tender of a Company redemption payment to
elect to convert to common stock in lieu of redemption.
The convertible preferred stockholders are entitled to vote as a
class to elect one member of the Board of Directors of the Company.
The convertible preferred stock has a liquidation priority over
common stock, but not over non-convertible preferred stock, of $.75
per share plus any accrued but unpaid dividends.
Non-convertible Preferred Stock
The non-convertible preferred stock is entitled to quarterly cash
dividends as follows:
<TABLE>
<S> <C> <C>
October 30, 1992 to October 31, 1997 7% per annum ($.035 per share)
November 1, 1997 to October 31, 1998 8% per annum ($.040 per share)
November 1, 1998 and thereafter 9% per annum ($.045 per share)
</TABLE>
20
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 13 - PREFERRED STOCK (Continued)
In the event that a dividend is not paid within thirty days of its
due date, the holders of the non-convertible preferred stock have a
right to elect two members to the Board of Directors of the Company
until such time as two quarterly dividends have been paid timely.
The Company has the right to redeem the non-convertible preferred
stock at $.60 per share plus accrued and unpaid dividends. No
preferred stock has been redeemed.
NOTE 14 - OTHER ACCRUED EXPENSES
<TABLE>
<CAPTION>
OCTOBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Accrued warranty $110,432 $ 68,027
Accrued royalty -- 10,000
Accrued pension and profit sharing 85,961 88,877
Accrued property tax 2,505 15,013
Accrued settlement offer 25,000 25,000
Accrued insurance 22,412 --
Other accrued expenses 51,450 42,449
-------- --------
Total $297,760 $249,366
======== ========
</TABLE>
21
<PAGE>
PRAB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
NOTE 15 - OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
OCTOBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Prepaid insurance $ -- $152,475
Deposits 149 --
Prepaid workmen's compensation 5,221 521
Interest receivable -- 643
Prepaid advertising 9,292 22,008
Other prepaid assets 5,786 7,615
State taxes refundable 55,837 --
-------- --------
Total $ 76,285 $183,262
======== ========
</TABLE>
NOTE 16 - SALE OF UNIMATE DIVISION (NORTH AMERICA)
During December 1992, the Company entered into an agreement to sell
one of its lines of robots, including all equipment, inventory and
three year covenant not to compete for $300,000 cash, and a
non-interest bearing note of $600,000.
The note receivable consisted of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Note receivable (face amount $600,000),
collateralized by real estate and the
personal guarantee of the purchaser
limited to $100,000 $ -- $ 171,524
Less current portion -- 171,524
--------- ---------
Long-term portion $ -- $ --
========= =========
</TABLE>
22
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER Description of Exhibit
- ------- ----------------------
3(i) Second Restated Articles of Incorporation 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.
3(ii) By-Laws of the Company as amended incorporated herein by reference
to Exhibit 4 of the Company's Form 8-A/A (Amendment No. 1) dated
May 25, 1995.
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. Registration Rights and Shareholders Agreement, dated October 30,
1992, between the Company and State Treasurer of the State of
Michigan, custodian for certain retirement systems incorporated
herein by reference to Exhibit 4e of the Company's Form 8-K dated
November 13, 1992, as amended by First Amendment to Registration
Rights and Shareholders Agreement dated October, 1994 incorporated
herein by reference to Exhibit 4c. 2 of the Company's Form 10-KSB
for the fiscal year ended October 31, 1994.
21 List of Subsidiaries.
24a. Power of Attorney for Robert J. Skandalaris
24b. Power of Attorney for Robert J. Hamman
24c. Power of Attorney for Eric V. Brown, Sr.
24d. Power of Attorney for James H. Haas
27 Financial Data Schedule
Exhibit 21
List of Subsidiaries
Prab Limited (f/k/a "Prab Robots International Ltd.") an English corporation,
which subsidiary does not hold any material assets and is inactive.
Exhibit 24a.
POWER OF ATTORNEY
The person signing below hereby designates John J. Wallace and Gary
Herder, or either of them, as his Attorney-in Fact with power to execute on
behalf of such person, in his capacity or capacities, as indicated below, the
Form 10-KSB, Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934, for Prab, Inc. for the year ended October 31, 1995, and
all amendments to such Form 10-KSB.
Dated: January 15 , 1996 /s/Robert J. Skandalaris
---- --------------------------
Robert J. Skandalaris
Director
Exhibit 24b.
POWER OF ATTORNEY
The person signing below hereby designates John J. Wallace and Gary
Herder, or either of them, as his Attorney-in Fact with power to execute on
behalf of such person, in his capacity or capacities, as indicated below, the
Form 10-KSB, Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934, for Prab, Inc. for the year ended October 31, 1995, and
all amendments to such Form 10-KSB.
Dated: January 13 , 1996 /s/Robert J. Hamman
---- --------------------------
Robert J. Hamman
Director
Exhibit 24c.
POWER OF ATTORNEY
The person signing below hereby designates John J. Wallace and Gary
Herder, or either of them, as his Attorney-in Fact with power to execute on
behalf of such person, in his capacity or capacities, as indicated below, the
Form 10-KSB, Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934, for Prab, Inc. for the year ended October 31, 1995, and
all amendments to such Form 10-KSB.
Dated: January 15 , 1996 /s/Eric V. Brown, Sr.
---- --------------------------
Eric V. Brown, Sr.
Director
Exhibit 24d.
POWER OF ATTORNEY
The person signing below hereby designates John J. Wallace and Gary
Herder, or either of them, as his Attorney-in Fact with power to execute on
behalf of such person, in his capacity or capacities, as indicated below, the
Form 10-KSB, Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934, for Prab, Inc. for the year ended October 31, 1995, and
all amendments to such Form 10-KSB.
Dated: January 16 , 1996 /s/James H. Haas
---- --------------------------
James H. Haas
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> $ 323,297
<SECURITIES> 0
<RECEIVABLES> 2,412,362
<ALLOWANCES> 39,000
<INVENTORY> 1,134,356
<CURRENT-ASSETS> 4,269,490
<PP&E> 4,014,708
<DEPRECIATION> 3,053,409
<TOTAL-ASSETS> 5,248,750
<CURRENT-LIABILITIES> 2,049,292
<BONDS> 0
0
1,800,000
<COMMON> 264,786
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,248,750
<SALES> 13,845,432
<TOTAL-REVENUES> 13,845,432
<CGS> 8,422,388
<TOTAL-COSTS> 12,620,131
<OTHER-EXPENSES> (145,887)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,332
<INCOME-PRETAX> 1,287,856
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,287,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,287,856
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
