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, 1999
[ ] 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: (616) 382-8200
Securities Registered under Section 12(b) of the Exchange Act
None
Securities Registered under Section 12(g) of the Exchange 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.[ ]
The issuer's revenues for its most recent fiscal year were:
$15,316,820.
The aggregate market value of Common Stock held by persons not
"affiliated" with the issuer, based on the average bid and ask price of the
Common Stock as of December 31, 1999, was $1,682,523. 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, 1999, the registrant had outstanding 1,757,339
shares of Common Stock, $.10 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-KSB Into Which
Identity of Document Document is Incorporated
Definitive Proxy Statement with Part III
respect to the 2000 Annual Meeting
of Shareholders of the Company.
Transitional Small Business Disclosure Format:
Yes [ ] No [ X ]
PART I
Item 1. Business
General
The Company is a Michigan corporation organized in 1961. The
Company's operations consist of designing and manufacturing conveyors, metal
scrap reclamation systems and bulk material handling equipment. The Company
sells its products worldwide through a network of factory sales engineers,
manufacturers' agents, and distributors. These products are used in a variety
of manufacturing processes to reduce labor costs, increase productivity,
improve quality and save materials and energy resources.
Overview
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 HarpoonTM, drag, tubular, oscillating,
screw, hinged steel belt, magnetic, and pneumatic models.
The Company also sells conveyors and systems under the trade name of
HapmanTM, which are used primarily to transport bulk materials, such as
powders and chemicals. These tubular, flexible screw (HelixTM), and pneumatic
conveyors, bulk bag unloaders, and bag dumping stations (also known as "bulk
material handling equipment") are used in the chemical, pharmaceutical, food,
plastics and other processing industries and sell in the price range of
$2,000 to $100,000.
Sales
The Company's business is not seasonal; however, fluctuations in
sales are common due to large system orders, which is typical of the capital
equipment industry. Foreign sales and license fees accounted for 11%, 11%,
and 17% of the Company's net sales for fiscal years 1999, 1998 and 1997,
respectively. 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, 1999 and October
31, 1998 is set forth below. The Company believes all backlog orders
outstanding as of October 31, 1999 will be filled within one year.
Increase
As of As of (Decrease)
October 31, October 31, From 1998
1999 1998 to 1999
----------- ----------- ---------
$2,084,000 $3,174,000 (34%)
Marketing and Distribution
The Company maintains demonstration equipment in its factory
applications laboratory.
The Company 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.
Engineering and Design Development
The Company's engineering and design personnel develop and modify
its products to meet the customers' specifications. Most 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
products. The principal materials used in all of the Company's products are
bar and sheet metal, stampings, 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
$485,000, $393,000, and $525,000 for 1999, 1998 and 1997, 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 business. The costs and effects of compliance with
environmental laws is not a significant factor in the Company's business.
Patents and Trademarks
The Company owns numerous domestic and foreign patents and has
developed technology and special skills relating to 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 business is
dependent upon such protection. The Company holds registered trademarks for
the names "Prab", "Hapman", "Harpoon", 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.
Employees
As of December 31, 1999, the Company employed 91 persons, 90 of
which persons were employed on a full-time basis. 40 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
November 1, 2001.
Item 2. Properties
All of the Company's offices and manufacturing facilities are
located in Kalamazoo, Michigan, in a 72,000 square foot building owned by the
Company.
The Company's facility has been used for conveyor manufacturing
since the early 1960's. 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 full first shift operation and a small second shift
operation. The facility is in good operating condition. The Company's bank
holds a mortgage on the facility to secure payment of the Company's
obligations to it.
Item 3. Legal Proceedings
The Company is subject to claims and lawsuits arising in the
ordinary course of business. In the opinion of management, all such pending
claims and lawsuits are either adequately covered by insurance or, if not
insured, will not have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
PART II
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:
1999
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Stock Price (bid)
High 3 1/8 2 1/2 2 1/4 1 15/16
Low 2 3/8 1 5/8 1 11/16 1 1/2
1998
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Stock Price (bid)
High 3 5/8 3 3 1/16 3 1/4
Low 1 3/4 2 1/2 2 5/8 2 5/8
The Common Stock is regularly quoted on the OTC Bulletin Board
(OTCBB). The above bid prices are quotations reflecting inter-dealer prices,
without retail markup, markdown or commissions, and may not necessarily
represent actual transactions. At December 31, 1999, there were approximately
1,023 record holders of the Common Stock.
The Company has paid no dividends on its Common Stock. 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.
Item 6. Management's Discussion and Analysis or Plan of Operation
Overview of Recent Significant Events
Net sales in 1999 decreased 16% and new order bookings decreased 14%
when compared to 1998. Operating profits in 1999 decreased by $757,000
resulting primarily from lower sales and the Company's decision to retain
nearly all employees and focus on increasing sales in the long term rather
than trying to reduce costs by laying off employees.
Long-term debt was paid in full during the first six months of 1999,
approximately two and one half years ahead of schedule. Total debt repayment
in 1999 amounted to $680,000.
New business bookings for the first two months of fiscal year 2000
have improved and are 41% higher than the same period a year ago. As a
result, backlog has increased to $3,070,000 as of December 31, 1999.
The Company repurchased all of its outstanding convertible preferred
stock from the State of Michigan Retirement Systems on
December 28, 1999 for a price of $1.63 per share plus accrued dividends of
$3,545. The total purchase price of $601,212 was financed by a draw on the
Company's line of credit. The 366,667 shares of convertible preferred stock
represented approximately 17% of the Company's total shares of common stock
outstanding on a diluted basis. Management believes that the repurchase of
all of its outstanding preferred stock will benefit the Company and its
shareholders as a result of: elimination of the mandatory $22,000 annual
dividend on the preferred stock; avoidance of the expense of registering the
common stock to be issued upon conversion of the preferred stock, which
registration had been demanded by the State of Michigan Retirement Systems
pursuant to certain previously granted rights; elimination of the risk that
efforts by the State of Michigan Retirement Systems to sell its position in
the Company would negatively affect the market price of the Company's common
stock; and the positive effect on diluted earnings per share after fiscal
year 2000. The convertible preferred stock was redeemed at a premium (meaning
its per share redemption price exceeded its per share carrying cost) of
approximately $0.88 per share. For purposes of calculating earnings per
share, this premium is accounted for as a reduction from net income available
for common shareholders. Management expects the effect of this redemption
will be to reduce earnings per share by up to $0.18 in 2000.
1999 Compared to 1998
Net sales decreased 16% in 1999 to $15,317,000 from $18,237,000 in
1998. Part sales were 23% of total sales versus 18% a year ago.
The Company's business is highly competitive and very sensitive to
price. The decrease in net sales in 1999 was primarily due to decreased sales
of Prab conveyors and chip processing systems. The actual sales fluctuation
due to price is not known.
Cost of sales compared to net sales decreased to 60% in 1999 from
61% in 1998. Selling, general and administrative expenses were 34% of net
sales in 1999 and 30% in 1998.
Interest expense decreased as a result of paying off all term debt
in the first six months of 1999.
Trends
The Company's backlog of orders at October 31, 1999 was lower than
the prior year due to lower booking levels, however, bookings for the first
two months of fiscal year 2000 are 41% higher than the same period a year
ago. In addition, the Company has hired a Marketing Director to further
enhance its efforts in increasing market awareness and sales. Sales for the
Company
are projected by management to be slightly higher for the first half of
fiscal 2000. Sales should generally follow national economic trends in the
second half of fiscal 2000.
Sales of bulk material handling parts and equipment in 1999
increased 9% from 1998 sales. Sales of metal scrap processing conveyors,
parts, and chip systems in 1999 decreased 31% from 1998 sales.
Liquidity and Financial Condition
The Company's primary cash requirements in 1999 were operating
expenses, capital expenditures, and debt repayment.
In 1999, the Company's operations provided $831,000 of cash and the
Company had working capital at the end of the year of $2,706,000 compared to
$2,260,000 a year ago. The increase resulted primarily from elimination of
term debt combined with increased inventory. Capital expenditures were down
from the prior year with $136,000 in 1999 versus $223,000 in 1998. Other
current assets increased primarily because of an increase in prepaid
insurance.
The Company has a $1,750,000 line of credit which is subject to a
borrowing formula based upon certain asset levels of the Company. As of
December 31, 1999, $1,671,763 was available to the Company under the line of
credit and the Company had borrowed $810,000 of such amount. The Company
believes this financing, combined with cash generated by operations in 2000,
will provide sufficient funds to finance working capital requirements,
capital additions, and line of credit repayments.
Summary
The Company's net income for 2000 will be positively impacted by
lower interest expense on reduced debt. Excess cash will primarily be used to
reduce recent borrowings on the line of credit. Even though the Company's
order backlog is lower going into the first quarter than the previous year,
management believes fiscal year 2000 sales may be higher due to increased new
business bookings in the first two months of the new fiscal year.
Item 7. Financial Statements
(a) The following Financial Statements are attached hereto in
response to Item 7:
Independent Auditor's Report - Plante & Moran, LLP
Consolidated Balance Sheets - October 31, 1999 and October
31, 1998
Consolidated Statement of Income - Years ended October 31,
1999 and October 31, 1998
Consolidated Statement of Changes in Stockholders' Equity -
Years ended October 31, 1999 and October 31, 1998
Consolidated Statement of Cash Flows - Years ended October
31, 1999 and October 31, 1998
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 captions "Directors and Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance"
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 captions "Executive Compensation", "Option
Grants in Last Fiscal Year", "Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values" and "Compensation of Directors" 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.
Item 13. Exhibits and Reports on Form 8-K
(a) The following exhibits are attached hereto or incorporated
herein by reference:
Exhibit
Number Description of Exhibit
- ------- ----------------------
3(i). Second Restated Articles of Incorporation of the Company, as
amended, incorporated herein by reference to Exhibit 3(i) of the
Company's Form 8-A/A (Amendment No.1) dated May 25, 1995.
3(ii). By-Laws of the Company as amended incorporated herein by reference
to Exhibit 3(ii) of the Company's Form 8-A/A (Amendment No.1)
dated May 25, 1995.
4b. $1,800,000 Commercial Term Note dated October 31, 1996 from the
Company to FMB-Arcadia Bank (now known as The Huntington National
Bank) incorporated herein by reference to Exhibit 4b of the
Company's Form 8-K dated October 31, 1996.
4c. Security Agreement with Addendum dated October 31, 1996 from the
Company to FMB-Arcadia Bank (now known as The Huntington National
Bank) incorporated herein by reference to Exhibit 4c of the
Company's Form 8-K dated October 31, 1996.
4d. Future Advance Mortgage dated October 30, 1992 from the Company to
FMB-Arcadia Bank (now known as The Huntington National Bank),
together with Amendment to Mortgage dated October 31, 1996
incorporated herein by reference to Exhibit 4d of the Company's
Form 8-K dated October 31, 1996.
4e. Addendum to Commercial Term Note dated October 31, 1996 executed
December 4, 1997 incorporated by reference to Exhibit 4e of the
Company's Form 10-KSB for the fiscal year ended October 31, 1998.
4f. Addendum to Security Agreement dated October 31, 1996 executed
March 9, 1998 incorporated by reference to Exhibit 4f of the
Company's Form 10-KSB for the fiscal year ended October 31, 1998.
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.
10d. Prab, Inc. 1999 Stock Option Plan incorporated by reference to the
Appendix of the Company's Definitive Proxy Statement for the 1999
Annual Meeting.
21. List of Subsidiaries.
24a. Power of Attorney for William G. Blunt
24b. Power of Attorney for John W. Garside
24c. Power of Attorney for Eric V. Brown, Jr.
24d. Power of Attorney for James H. Haas
27. Financial Data Schedule
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.
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/Gary A. Herder
-----------------
Gary A. Herder,
President
January 27, 2000
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/ Gary A. Herder President, Chief January 27, 2000
- ------------------------ Executive Officer
Gary A. Herder And Director (Principal
Executive Officer)
Secretary and Director January 27, 2000
- ------------------------
*Eric V. Brown, Jr.
Director January 27, 2000
- ------------------------
*William G. Blunt
Director January 27, 2000
- ------------------------
*James H. Haas
Director January 27, 2000
- ------------------------
*John W. Garside
/s/ Robert W. Klinge Treasurer, Vice January 27, 2000
- ------------------------ President of Finance
Robert W. Klinge And Chief Financial
Officer (Principal
Accountant and Principal
Financial Officer)
*
By:/s/ Gary A. Herder January 27, 2000
---------------------
Gary A. Herder
Attorney-in-Fact
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report on Form 10-KSB
For the Year Ended October 31, 1999
--------
Financial Statements
Index to Exhibits
Exhibits
--------
PRAB,INC.
(A Michigan Corporation)
5944 E. Kilgore Road
P.O. Box 2121
Kalamazoo, Michigan 49003
Prab, Inc.
-----------------------------
Consolidated Financial Report
October 31, 1999
Prab, Inc.
- -----------------------------------------------------------------------------
Contents
Report Letter 1
Consolidated Financial Statements
Balance Sheet 2
Statement of Income 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-20
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, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. 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, 1999 and 1998, 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 8, 1999
Prab, Inc.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31
-----------------------
1999 1998
---- ----
Assets
<S> <C> <C>
Current Assets
Cash $ 46,637 $ 51,621
Accounts receivable, net of allowance for doubtful
accounts of $47,792 in 1999 and $48,248 in 1998 3,031,402 3,367,308
Inventories (Note 2) 1,549,939 1,413,078
Deferred income taxes (Note 8) 411,442 431,296
Other current assets 189,388 117,148
---------- ----------
Total current assets 5,228,808 5,380,451
Property, Plant and Equipment (Note 3) 1,027,069 1,085,202
Other Assets
Deferred charges, net of accumulated amortization
of $25,657 in 1999 and $8,304 in 1998 (Note 1) -- 17,353
Deferred income taxes (Note 8) 350,803 381,704
Other assets 113,118 116,701
---------- ----------
Total other assets 463,921 515,758
---------- ----------
Total assets $6,719,798 $6,981,411
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- ------------------------------------------------------------------------------
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31
-----------------------
1999 1998
---- ----
Liabilities and Stockholders' Equity
<S> <C> <C>
Current Liabilities
Notes payable - Bank (Note 5) $ 300,000 $ 200,000
Current portion of long-term debt (Note 4) -- 360,000
Accounts payable 887,267 986,312
Customer deposits 139,842 342,282
Salaries, wages and vacation 361,138 475,270
Commissions 474,289 377,980
Other accrued expenses 360,691 378,993
---------- ----------
Total current liabilities 2,523,227 3,120,837
Long-term Debt (Note 4) -- 420,000
Deferred Compensation (Note 6) 18,372 17,183
Stockholders' Equity
Convertible preferred stock (Note 11) - $.75 par value:
Authorized - 2,000,000 shares
Issued and outstanding - 366,667 shares at October 31,
1999 and 1998 275,000 275,000
Common stock - $.10 par value:
Authorized - 7,000,000 shares
Issued and outstanding - 1,757,339 shares at October 31,
1999 and 1998 175,734 175,734
Additional paid-in capital 1,395,743 1,161,828
Retained earnings since November 1, 1995 2,331,722 1,810,829
---------- ----------
Total stockholders' equity 4,178,199 3,423,391
---------- ----------
Total liabilities and stockholders' equity $6,719,798 $6,981,411
========== ==========
</TABLE>
2
Prab, Inc.
- ------------------------------------------------------------------------------
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended October 31
----------------------------
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 15,316,820 $ 18,237,373
Cost of Sales 9,256,570 11,177,529
------------ ------------
Gross Profit 6,060,250 7,059,844
Selling, General and Administrative Expenses 5,166,044 5,409,116
------------ ------------
Operating Income 894,206 1,650,728
Other Income (Expenses)
Interest expense (38,122) (119,886)
Interest income 6,704 7,214
Other 825 127
------------ ------------
Income - Before income taxes and extraordinary item 863,613 1,538,183
Income Tax Expense (Note 8) 320,720 539,631
------------ ------------
Net Income Before Extraordinary Item 542,893 998,552
Extraordinary Item - Loss on retirement of subordinated
debt, net of income tax benefit of $39,931 (Note 4) -- 77,512
------------ ------------
Net Income $ 542,893 $ 921,040
============ ============
Earnings per Common and Common Share Equivalent
Basic $ 0.30 $ 0.51
============ ============
Diluted $ 0.24 $ 0.41
============ ============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
3
Prab, Inc.
- ------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Convertible Preferred Stock Common Stock
--------------------------- -----------------------
Additional Total
Paid-in Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
------- ----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - November 1, 1997 366,667 $ 275,000 1,757,339 $ 175,734 $ 709,467 $ 909,039 $ 2,069,240
Convertible preferred stock
dividends (Note 11) -- -- -- -- -- (19,250) (19,250)
Recognition of income
tax recoveries
subsequent to a quasi-
reorganization (Note 1) -- -- -- -- 452,361 -- 452,361
Net income -- -- -- -- -- 921,040 921,040
------- ----------- --------- ----------- ----------- ----------- -----------
Balance - October 31, 1998 366,667 275,000 1,757,339 175,734 1,161,828 1,810,829 3,423,391
Convertible preferred stock
dividends (Note 11) -- -- -- -- -- (22,000) (22,000)
Recognition of income
tax recoveries
subsequent to a quasi-
reorganization (Note 1) -- -- -- -- 233,915 -- 233,915
Net income -- -- -- -- -- 542,893 542,893
------- ----------- --------- ----------- ----------- ----------- -----------
Balance - October 31, 1999 366,667 $ 275,000 1,757,339 $ 175,734 $ 1,395,743 $ 2,331,722 $ 4,178,199
======= =========== ========= =========== =========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
4
Prab, Inc.
- ------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended October 31
--------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 542,893 $ 921,040
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 210,333 182,679
Gain on sale of fixed assets (825) --
Amortization of discounts on subordinated notes -- 1,740
Bad debt expense 51,810 31,558
Deferred taxes 284,670 452,361
Loss on retirement of subordinated debt -- 117,443
(Increase) decrease in assets:
Accounts receivable 284,096 (34,703)
Inventories (136,861) (45,615)
Other current and noncurrent assets (68,657) 74,583
Increase (decrease) in liabilities:
Accounts payable (99,045) (126,939)
Customer deposits (202,440) (103,615)
Accrued expenses (36,125) 85,757
Deferred compensation 1,189 1,144
----------- -----------
Net cash provided by operating activities 831,038 1,557,433
Cash Flows from Investing Activities
Purchase of equipment (136,272) (222,797)
Proceeds from sale of equipment 2,250 --
----------- -----------
Net cash used in investing activities (134,022) (222,797)
Cash Flows from Financing Activities
Net borrowings (repayment) on line of credit 100,000 (250,000)
Payments on long-term debt (780,000) (1,040,000)
Payment of dividends (22,000) (19,250)
----------- -----------
Net cash used in financing activities (702,000) (1,309,250)
----------- -----------
Net Increase (Decrease) in Cash (4,984) 25,386
Cash - Beginning of year 51,621 26,235
----------- -----------
Cash - End of year $ 46,637 $ 51,621
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
5
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 1 - Nature of Business and Significant Accounting Policies
Prab, Inc. and subsidiary (the "Company") is engaged in the
manufacturing of metal scrap reclamation systems and
conveyor equipment. Major customers are in the metal
working, chemical, pharmaceutical, and food processing
industries throughout the United States, Canada, Mexico,
Asia, and Europe. Sales outside the United States were
approximately 11 percent of total sales in 1999 and 1998.
Accounts receivable generated from foreign sales totaled
approximately $439,000 and $595,000 as of October 31, 1999
and October 31, 1998, respectively.
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
approximately $142,000 and $136,000 at October 31, 1999 and
1998, respectively, for these anticipated future warranty
costs.
Advertising - Advertising expense was approximately $407,000
and $441,000 for the years ended October 31, 1999 and 1998,
respectively, mostly for trade shows and publications.
6
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 1 - Nature of Business and Significant Accounting Policies (Continued)
Net Income Per Common and Common Equivalent Share - The
Company calculates earnings per share according to the
provisions of SFAS 128.
A reconciliation of net income to net income available to
common shareholders is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Basic Diluted Basic Diluted
Earnings Earnings Earnings Earnings
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 542,893 $ 542,893 $ 921,040 $ 921,040
Dividends on convertible preferred stock (22,000) -- (19,250) --
----------- ----------- ----------- -----------
Net income available to common shareholders $ 520,893 $ 542,893 $ 901,790 $ 921,040
=========== =========== =========== ===========
Common and common equivalent shares outstanding 1,757,339 2,231,299 1,757,339 2,255,112
=========== =========== =========== ===========
Earnings per common and common equivalent shares $ 0.30 $ 0.24 $ 0.51 $ 0.41
=========== =========== =========== ===========
</TABLE>
A reconciliation of common and common equivalent shares
outstanding is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Weighted average number of outstanding common shares 1,757,339 1,757,339 1,757,339 1,757,339
Incremental shares from outstanding options dated 12/14/89 -- 178 -- 4,605
Incremental shares from outstanding options dated 02/22/91 -- 46,251 -- 50,954
Incremental shares from outstanding options dated 10/23/91 -- 24,328 -- 33,373
Incremental shares from outstanding options dated 05/26/94 -- 34,283 -- 36,406
Incremental shares from outstanding options dated 11/19/97 -- 2,253 -- 5,768
Incremental shares from convertible preferred stock -- 366,667 -- 366,667
--------- --------- --------- ---------
Common and common equivalent shares outstanding 1,757,339 2,231,299 1,757,339 2,255,112
========= ========= ========= =========
</TABLE>
There are no securities that could potentially dilute
earnings per share in the future that are not considered
above. There are no individual income effects from the
securities noted above.
7
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 1 - Nature of Business and Significant Accounting Policies (Continued)
Deferred Charges - Deferred charges included costs for the
issuance of debt related to the redemption of stock at
October 31, 1996. These costs were being amortized according
to the effective interest method over a period of 5 years.
The related debt was repaid during the year ended October
31, 1999 and the unamortized balance was included in
interest expense during the year ended October 31, 1999.
Amortization related to these deferred charges totaled
$17,353 and $8,304 for the years ended October 31, 1999 and
1998, respectively.
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 reflects earnings since November 1, 1995.
Income tax recoveries of temporary differences and
carryforwards that had not been recognized as of the date of
the quasi-reorganization that are recognized in subsequent
years are added directly to additional paid-in capital. Such
income tax recoveries were approximately $234,000 in 1999
and $452,000 in 1998.
Use of Estimates - 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Labor - Approximately 44 percent of the
Company's workforce is subject to a collective bargaining
agreement. The collective bargaining agreement expires
October 31, 2001.
8
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Stock Options - The Company has four stock option plans (see
Note 7). The Company accounts for its stock options using
the intrinsic value method. Under that method, compensation
expense is recognized to the extent the fair value of the
common stock exceeds the exercise price of the options at
the date the options are granted. Under the Company's plans,
the exercise price of options granted must equal or exceed
the value of the stock at the grant date. Accordingly, no
amounts are recorded as compensation expense for options
granted.
9
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 2 - Inventories
Inventories consist of the following:
1999 1998
---------- ----------
Raw materials $1,061,442 $1,036,846
Work in process 236,471 208,214
Finished goods and display units 252,026 168,018
---------- ----------
Total inventories $1,549,939 $1,413,078
========== ==========
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 $1,940,000 and $1,800,000 at October 31, 1999
and 1998, respectively.
Note 3 - Property, Plant and Equipment
Cost of property, plant and equipment and depreciable lives
are summarized as follows:
<TABLE>
<CAPTION>
Depreciable
1999 1998 Life - years
---------- ---------- ------------
<S> <C> <C> <C>
Land $ 28,939 $ 28,939 --
Buildings and improvements 1,784,873 1,762,455 10-30
Machinery and equipment 2,879,519 2,770,653 3-10
---------- ----------
Total cost 4,693,331 4,562,047
Less accumulated depreciation 3,666,262 3,476,845
---------- ----------
Net carrying amount $1,027,069 $1,085,202
========== ==========
</TABLE>
Depreciation expense totaled approximately $193,000 and
$179,000 at October 31, 1999 and 1998, respectively.
10
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 4 - Long-term Debt
Long-term debt consisted of the following:
1999 1998
------ --------
Term note payable collateralized by
essentially all assets of the Company,
bearing interest at a fixed rate of 8.25%,
payable in quarterly installments of $90,000
plus interest, repaid in full during the year
ended October 31, 1999 $ -- $780,000
Less current portion -- 360,000
------ --------
Long-term portion $ -- $420,000
====== ========
Pursuant to the term note and notes payable - bank
agreements, the Company has agreed to maintain certain
levels of tangible net worth and maintain minimum ratios of
current assets to current liabilities and debt to tangible
net worth. The Company has also agreed not to create, incur,
assume, or guarantee indebtedness, merge, sell or lease a
substantial part of the business, or make loans.
The Company repaid subordinated notes payable in November
1997. Since the notes were carried at a discount, the payoff
amount of this debt exceeded its carrying amount and an
extraordinary loss on the extinguishment of the debt was
reported. The effect of this transaction for the year ended
October 31, 1998 was to decrease income by $77,512, net of
the income tax benefit of $39,931. The effect of the
extraordinary item for retirement of subordinated debt was
to decrease basic and diluted earnings per share by $.04 and
$.03, respectively, after the consideration of income taxes.
11
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 5 - Note Payable - Bank
At October 31, 1999, the Company has available a $1,750,000
line of credit under a commercial revolving note, expiring
March 31, 2000, bearing interest at .5 percent below the
bank's prime rate for an effective rate of 7.75 percent at
October 31, 1999. The line of credit is collateralized by
essentially all assets of the Company. Available borrowings
are based on a formula of eligible accounts receivable and
inventory. The line of credit supports letters of credit
totaling $17,000 and $6,749 for the years ended October 31,
1999 and 1998, respectively.
12
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 6 - Pension and Profit-sharing Plans
As of October 31, 1999 and 1998, 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, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation, including vested benefits of $841,826
and $716,824 in 1999 and 1998, respectively $ 968,685 $ 824,509
=========== ===========
Projected benefit obligation for service rendered to date $ (995,967) $ (866,784)
Plan assets at fair value - Primarily nongovernment
obligations and listed stock 1,204,518 1,096,496
----------- -----------
Assets in excess of projected benefit obligation 208,551 229,712
Unrecognized net gain from experience different than
that assumed or change in assumptions (232,859) (277,914)
Unrecognized prior service cost due to plan
amendment being amortized over 15 years 143,093 157,488
Unrecognized net asset at November 1, 1987
being recognized over 15 years (11,878) (15,952)
----------- -----------
Prepaid pension cost included in
other assets $ 106,907 $ 93,334
=========== ===========
</TABLE>
13
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 6 - Pension and Profit-sharing Plans (Continued)
A reconciliation of the projected benefit obligation is as
follows:
1999 1998
--------- ---------
Projected benefit obligation - Beginning of year $(866,784) $(763,308)
Actuarial gain (loss) during year (68,587) 11,488
Service cost (24,072) (19,701)
Interest cost (64,418) (51,570)
Distributions to plan participants 27,894 27,894
Plan amendment effective November 1, 1998 -- (71,587)
--------- ---------
Projected benefit obligation - End of year $(995,967) $(866,784)
========= =========
A reconciliation of fair value of plan assets is as follows:
1999 1998
----------- -----------
Fair value of plan assets - Beginning of year $ 1,096,496 $ 1,008,752
Contributions -- --
Distributions to plan participants (27,894) (27,894)
Actual return on plan assets 135,916 115,638
----------- -----------
Fair value of plan assets - End of year $ 1,204,518 $ 1,096,496
=========== ===========
Pension expense included the following components:
1999 1998
-------- --------
Service cost - Benefits earned during the year $ 24,072 $ 19,701
Interest cost on projected benefit obligation 64,418 51,570
Expected return on plan assets (97,498) (83,714)
Amortization of unrecognized transition asset (4,074) (4,074)
Amortization of unrecognized (gains) and losses (14,886) (13,758)
Amortization of prior service cost 14,395 16,997
-------- --------
Net periodic pension cost $(13,573) $(13,278)
======== ========
14
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 6 - Pension and Profit-sharing Plans (Continued)
The discount rate used in determining the actuarial present
value of the projected benefit obligation was 7 percent for
1999 and 1998. The expected long-term rate of return on
assets was 8 percent for 1999 and 1998.
The Company contributed $0 in 1999 and 1998 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 defined contribution 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
percent of the Company's income before income taxes,
proceeds from life insurance policies and gain on sale of
capital assets. Contributions for the profit-sharing plan
are used to buy Company stock. The stock under this plan is
allocated to salaried employees based on their pro-rata
compensation. Salaried employees vest in the shares of the
Company based on a 5 year schedule, 10 percent in year 1, 20
percent in year 2, 40 percent in year 3, 70 percent in year
4, and 100 percent in year 5. As of October 31, 1999, there
were approximately 190,000 shares held in the plan.
Contributions made by the Company in accordance with the
profit-sharing plan were approximately $40,000 in 1999 and
$73,000 in 1998. Employer matching contributions are made to
the 401(k) plan in an amount equal to 25 percent of the
lessor of: the amount designated by the employee for
withholding and contribution to the 401(k) plan; or 4
percent of the employee's total compensation. In addition,
the Company will make a contribution equal to one percent 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 approximately $38,000 and $40,000 in
1999 and 1998, respectively.
15
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 6 - Pension and Profit-sharing Plans (Continued)
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 percent of the lessor of: the amount
designated by the employee for withholding and contribution
to the 401(k) plan; or 4 percent of employee's total
compensation. Contributions to the plan totaled
approximately $9,500 and $10,000 for the years ended October
31, 1999 and 1998, respectively.
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 Plans
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. The plans had 276,500 shares reserved for
issuance as noted below.
Transactions involving the plans for years ended October 31,
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- -------------------------
Option Weighted Average Option Weighted Average
Shares Exercise Price Shares Exercise Price
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding - Beginning of year 226,500 $ 1.26 207,500 $ 1.18
Granted -- -- 20,000 2.13
Canceled -- -- (1,000) 2.37
------- -------- ------- --------
Outstanding - End of year 226,500 $ 1.26 226,500 $ 1.26
======= ======== ======= ========
Eligible for exercise at end of year 226,500 $ 1.26 226,500 $ 1.26
======= ======== ======= ========
</TABLE>
16
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 7 - Stock Option Plans (Continued)
Outstanding Exercise
Option shares Issue Date Expiration Date Price
------------- ---------- --------------- --------
21,500 12/14/1989 12/14/1999 $ 2.38
70,000 02/22/1991 02/22/2001 0.8125
70,000 10/23/1991 10/23/2001 1.5625
45,000 05/26/1994 05/26/2004 0.5703
20,000 11/19/1997 11/19/2007 2.125
The stock options are exercisable from the date issued and
expire on various dates through 2007. The exercise price
equals the market value of all options granted and,
therefore, none of the options involved compensation
expense.
The weighted average fair value of options granted during
1998 was $.75 per share. In determining the value of the
options granted, the Company assumed a risk free interest
rate of 6 percent, an expected option term of approximately
2 years, no dividends and volatility of approximately 50
percent, based on 5 years of the Company's stock price
history.
Had the Company used the fair value method of accounting for
its stock options, its 1998 net income and earnings per
share would have been reduced by approximately $15,000 and
$.01 (per share diluted), respectively. Use of the fair
value method would have had no impact on 1999 net income.
17
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 8 - Income Taxes
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current expense $ 36,050 $ 47,339
Deferred expense 284,670 452,361
-------- --------
Total income tax expense 320,720 499,700
Tax benefit allocated to extraordinary item -- 39,931
-------- --------
Income taxes before extraordinary item $320,720 $539,631
======== ========
</TABLE>
A reconciliation of income tax expense on pretax income
before extraordinary item at statutory rates to income tax
expense at the Company's effective rate is as follows:
1999 1998
--------- ---------
Taxes computed at statutory rates $ 293,628 $ 522,982
Tax effect related to extraordinary item -- (39,931)
State income taxes, net of federal benefit 17,678 9,454
Nondeductible expenses and other adjustments 9,414 7,195
--------- ---------
Total income tax expense $ 320,720 $ 499,700
========= =========
18
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 8 - Income Taxes (Continued)
The details of the net deferred tax asset are as follows:
1999 1998
----------- -----------
Deferred tax liabilities -- depreciation $ (67,394) $ (60,762)
Deferred tax assets:
Allowance for doubtful accounts 16,249 16,404
Net operating loss carryforward 488,933 771,297
Warranty reserve 48,227 46,346
Reserve for inventory obsolescence 113,011 119,356
Deferred compensation 6,246 5,842
Alternative minimum tax credit carryforward 93,686 83,686
Accrued vacation 63,287 64,746
----------- -----------
Total deferred tax assets 726,245 1,046,915
Valuation allowance recognized on deferred assets -- (233,915)
----------- -----------
Net deferred tax assets $ 762,245 $ 813,000
=========== ===========
19
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 8 - Income Taxes (Continued)
The following items affected deferred taxes during the years
ended October 31, 1999 and 1998:
1999 1998
--------- ---------
Net operating loss carryforward $(282,364) $(528,298)
Alternative minimum tax 10,000 31,000
Depreciation (6,632) (9,774)
Expenses not currently deductible for tax purposes
(expenses deductible for tax purposes but not
against financial statement income) (5,674) 54,711
--------- ---------
Total deferred tax expense (284,670) (452,361)
Tax recoveries reported as additions to paid-in
capital - Change in valuation allowance 233,915 452,361
--------- ---------
Decrease in net deferred tax asset $ (50,755) $ --
========= =========
The deferred tax liabilities result from using accelerated
depreciation for tax purposes. Deferred tax assets result
from expenses not deductible for tax purposes until paid,
alternative minimum tax credits and net operating loss
carryforwards. For tax purposes, the Company has net
operating loss carryforwards of approximately $1,425,000
that expire at various times through 2008 and alternative
minimum tax credit carryforwards of approximately $90,000
that do not expire. These carryforwards have been included
as deferred tax assets for financial reporting purposes. The
valuation allowance provided at October 31, 1998 was used to
reduce deferred tax assets to an amount management
reasonably expected to be recognized in the future based on
facts available at that time. As of October 31, 1999,
management expected all deferred tax assets to be
recognized, and accordingly has not recorded a valuation
allowance as of that date.
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 and
October 31, 1996, the Company undertook restructuring
transactions that involved a change in ownership. While the
Company believes it is not subject to any such limitation as
a result of these transactions, any additional ownership
change or an adverse decision by the Internal Revenue
Service regarding the restructuring could result in a
limitation.
20
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 9 - Related Party Transactions
A director of the Company is a senior principal in the law
firm that has been general legal counsel to the Company
since 1961. The Company incurred legal fees of approximately
$41,000 and $32,000 to the law firm in 1999 and 1998,
respectively.
Note 10 - Cash Flows
Cash paid during the years ended October 31, 1999 and 1998
for interest expense approximated $20,000 and $120,000,
respectively. A total of $25,200 and $17,878 was paid for
alternative minimum income taxes during the years ended
October 31, 1999 and 1998, respectively.
There were no significant noncash financing or investing
activities during 1999 or 1998.
Note 11 - Preferred Stock
Convertible Preferred Stock
The convertible preferred stock is entitled to quarterly
dividends at 8 percent per annum ($.06 per share) during the
year ended October 31, 1999 and 7 percent per annum ($.0525
per share) for the year ended October 31, 1998.
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 were 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. 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. The convertible-preferred stockholder has a 60-day
period after the tender of a Company redemption payment to
elect to convert to common stock in lieu of redemption.
21
Prab, Inc.
- ------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1999 and 1998
Note 11 - Preferred Stock (Continued)
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 of $.75 per share plus any accrued
dividends.
On December 10, 1999, the Company reached an agreement with
the shareholder of the convertible preferred stock to
repurchase all 366,667 shares issued and outstanding at a
price of $1.63 per share.
Nonconvertible Preferred Stock - There are 600,000 shares of
.50(cent) par nonconvertible preferred stock authorized.
Holders of the nonconvertible preferred stock would be
entitled to quarterly cash dividends equal to 9 percent per
annum ($.045 per share). As of October 31, 1999 and 1998,
there were no shares of nonconvertible preferred stock
issued and outstanding.
22
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(i) of the
Company's Form 8-A/A (Amendment No.1) dated May 25, 1995.
3(ii). By-Laws of the Company as amended incorporated herein by reference
to Exhibit 3(ii) of the Company's Form 8-A/A (Amendment No.1)
dated May 25, 1995.
4b. $1,800,000 Commercial Term Note dated October 31, 1996 from the
Company to FMB-Arcadia Bank (now known as The Huntington National
Bank) incorporated herein by reference to Exhibit 4b of the
Company's Form 8-K dated October 31, 1996.
4c. Security Agreement with Addendum dated October 31, 1996 from the
Company to FMB-Arcadia Bank (now know as The Huntington National
Bank) incorporated herein by reference to Exhibit 4c of the
Company's Form 8-K dated October 31, 1996.
4d. Future Advance Mortgage dated October 30, 1992 from the Company to
FMB-Arcadia Bank (now known as The Huntington National Bank),
together with Amendment to Mortgage dated October 31, 1996
incorporated herein by reference to Exhibit 4d of the Company's
Form 8-K dated October 31, 1996.
4e. Addendum to Commercial Term Note dated October 31, 1996 executed
December 4, 1997 incorporated by reference to Exhibit 4e of the
Company's Form 10-KSB for the fiscal year ended October 31, 1998.
4f. Addendum to Security Agreement dated October 31, 1996 executed
March 9, 1998 incorporated by reference to Exhibit 4f of the
Company's Form 10-KSB for the fiscal year ended October 31, 1998.
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.
10d. Prab, Inc. 1999 Stock Option Plan incorporated by reference to the
Appendix of the Company's Definitive Proxy Statement for the 1999
Annual Meeting.
21. List of Subsidiaries.
24a. Power of Attorney for William G. Blunt
24b. Power of Attorney for John W. Garside
24c. Power of Attorney for Eric V. Brown, Jr.
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 Gary Herder and Eric V.
Brown, Jr., 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, 1999, and
all amendments to such Form 10-KSB.
Dated: January 18, 2000 /s/William Blunt
----------------
William Blunt
Director
Exhibit 24b.
POWER OF ATTORNEY
The person signing below hereby designates Gary Herder and Eric V.
Brown, Jr., 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, 1999, and
all amendments to such Form 10-KSB.
Dated: January 19, 2000 /s/John Garside
---------------
John Garside
Director
Exhibit 24c.
POWER OF ATTORNEY
The person signing below hereby designates Gary Herder and Eric V.
Brown, Jr., 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, 1999, and
all amendments to such Form 10-KSB.
Dated: January 19, 2000 /s/Eric V. Brown, Jr.
---------------------
Eric V. Brown,Jr.
Director
Exhibit 24d.
POWER OF ATTORNEY
The person signing below hereby designates Gary Herder and Eric V.
Brown, Jr., 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, 1999, and
all amendments to such Form 10-KSB.
Dated: January 18, 2000 /s/James H. Haas
----------------
James H. Haas
Director
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