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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended October 31, 1997
Commission File No. 33-31720-NY
____________________
PROCESS EQUIPMENT, INC.
(Exact name of registrant as specified in its charter)
Nevada 62-1407522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26569 Corporate Ave.
Hayward, California 94545
(Address of principal executive offices)
Registrant's telephone number, including area code:
(510) 782-5122
____________________
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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
Indicate the number of shares of the issuer's classes of common stock, as of the
latest practicable date.
Class Outstanding as of
October 31, 1997
Common Stock, $.001 par value 3,644,800.
<PAGE 1>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets
at October 31, 1997 and April 30, 1997................. 3
Consolidated Statements of Operations
for the Six Months Ended October 31, 1997 and
October 31, 1996....................................... 4
Consolidated Statements of Operations
for the Three Months Ended October 31, 1997 and
October 31, 1996....................................... 5
Consolidated Statements of Cash Flow
for the Six Months Ended October 31, 1997.............. 6
Consolidated Statements of Stockholders' Equity
for the Six Months Ended October 31, 1997.............. 7
Notes to Consolidated Financial Statements............. 8
<PAGE 2>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 1997 and April 30, 1997
(Unaudited)
Assets
October 31, April 30,
1997 1997
Current Assets
Cash $ 168,000 $138,356
Accounts Receivable - Trade (less
$10,000 and $5,000 Reserve for
Bad Debts for October 1997 and
April 1997 respectively) 443,625 470,964
Inventory (Note 1) 343,347 352,575
Prepaid Expenses 1,733 13,040
Deposit on Lease- Building 4,670 9,341
Vendor Deposits (Note 2) 14,316 0
Total Current Assets 975,691 984,276
Property, Plant and Equipment
(Notes 1 and 3) 42,728 46,291
Total Assets $1,018,419 $1,030,567
Liabilities and Stockholders' Equity
Current Liabilities
Notes and Lease payable - current
portion (Notes 5 and 6) $ 47,009 $ 57,201
Accounts Payable and Accrued
Expenses 208,367 255,735
Customer Deposits (Note 1) 40,371 129,881
Total Current Liabilities 295,747 442,817
Long Term Liabilities
Notes and Leases payable
(Notes 5 and 6) 0 0
Total Liabilities 295,747 442,817
Stockholders' Equity
Common Stock, par value $.001;
25,000,000 shares authorized,
3,644,800 issued and outstanding 3,645 3,645
Additional Paid in Capital 1,249,412 1,249,412
Accumulated Deficit ( 530,385) ( 665,307)
Total Equity 722,673 587,750
Total Liabilities and
Stockholders' Equity $1,018,419 $1,030,567
See Accompanying Footnotes
<PAGE 3>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended October 31, 1997 and 1996
(Unaudited)
October 31, October 31,
1997 1996
Sales $1,381,056 $1,031,466
Commissions 0 0
Total Revenue 1,381,056 1,031,466
Cost of Goods Sold 959,421 748,434
Gross Profit 421,635 283,031
Selling, General and Administrative
Expenses 275,265 189,957
Income from Operations 146,370 93,985
Other Income and (Expense)
Other Income 2 193
Interest Expense (2,915) (3,874)
Prior Period Write-Offs (7,734) 0
Income Before Income Taxes 135,723 89,393
Income Taxes 800 0
Net Income $ 134,923 $ 89,393
Net Income Per Share $ 0.04 $ 0.02
See Accompanying Footnotes
<PAGE 4>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended October 31, 1997 and 1996
(Unaudited)
October 31, October 31,
1997 1996
Sales $ 679,589 $ 506,958
Commissions 0 0
Total Revenue 679,589 506,958
Cost of Goods Sold 517,126 358,444
Gross Profit 162,463 148,514
Selling, General and Administrative
Expenses 96,696 95,972
Income from Operations 65,767 52,542
Other Income and (Expense)
Other Income 0 193
Interest Expense (1,704) (1,886)
Prior Period Write-Offs 8,246 0
Income Before Income Taxes 72,307 50,752
Income Taxes 0 0
Net Income $ 72,307 $ 50,753
Net Income Per Share $ 0.02 $ 0.01
See Accompanying Footnotes
<PAGE 5>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Six Months Ended October 31, 1997
(Unaudited)
October 31,
1997
Cash Flow from Operational Activities:
Net Income $ 134,923
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 5,403
140,326
Changes in Assets and Liabilities:
Increase in Accounts Receivable 27,339
Decrease in Inventory 9,228
Decrease in Prepaid Expenses 11,307
Increase in Vendor Deposits (9,645)
Decrease in Accts Payable and
Accrued Expenses (47,368)
Decrease in Customer Deposits (89,510)
(98,649)
Net Cash Flow from Operational Activities 41,667
Cash Flows from Financing Activities:
Principal Payments on Notes and Leases Payable (10,193)
Increase in Fixed Assets (1,840)
Net Increase in Cash 29,644
Cash - Beginning 138,356
Cash - Ending $ 168,000
See Accompanying Footnotes
<PAGE 6>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended October 31, 1997
(Unaudited)
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (Deficit)
Balance April 30, 1997 3,644,800 $ 3,645 $1,249,412 $(665,307)
Net Income 134,922
Balance Oct. 31, 1997 3,644,800 $ 3,645 $1,249,412 $(530,385)
See Accompanying Footnotes
<PAGE 7>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 31, 1997 (Unaudited)
Note 1 - Summary of Significant Accounting Policies
Business and Organization
Process Equipment, Inc. (formerly PEI, Inc. and Sharon Capital Corporation) was
organized under the laws of the State of Nevada on September 1, 1989. Process
Engineers, Inc. was incorporated October 13, 1966 in the State of California.
The principal business of the Company is the sales, service and manufacturing of
equipment for the wine, food and bio-technology industry. Process
Engineers, Inc. is a wholly owned subsidiary of Process Equipment, Inc.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for the six month period ended October 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending April 30, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended April 30, 1997.
Fixed Assets
Fixed Assets are stated at cost and depreciated over their estimated allowable
useful lives (5 to 31.5 years), utilizing both the straight-line and
declining balance methods. Expenditures for major renewals and betterments
that extend the useful lives of fixed assets are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred.
Inventory
Inventory is stated at the lower of cost or market determined on the First-in,
First-out basis.
Income Taxes
The Company has elected to be taxed under Subchapter C of the Internal Revenue
Code. For income tax purposes, depreciation is computed using the accelerated
cost recovery method and the modified accelerated cost recovery system.
Deferred Taxes
The Company incurs a timing difference in depreciation expense due to the
difference in depreciation methods used for financial and income purposes. Due
to its immateriality, no deferred tax adjustment is made.
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 31, 1997 (Unaudited)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary. The consolidation was treated as a reverse acquisition.
Earnings/Loss Per Share
Primary earnings per common share are computed by dividing the net income (loss)
by the weighted average number of shares of common stock and common stock
equivalents outstanding during the three months ended October 31, 1997 and
October 31, 1996.
Customer Deposits
The Company collects deposits from various customers for custom designed
equipment and for certain large orders. The deposits are collected while the
equipment is being designed and manufactured and are shown as a liability when
collected. These funds become revenues when the equipment is completed and
shipped to the customer.
Note 2 - Vendor Deposits
The Company has funds deposited with foreign vendors for imported equipment
sales.
Note 3 - Property, Plant and Equipment
Transportation Equipment $ 34,690
Office Equipment 98,781
Shop Equipment 37,237
Leasehold Improvement 36,404
Total $207,112
Less: Accumulated Depreciation 164,385
$ 42,727
Note 5 - Leasing Arrangements
Capital Lease
The Company leased certain equipment under a noncancellable capital lease that
expired September, 1997. Assets recorded under this lease as of October 31,
1997 consist of the following:
Equipment $ 4,811
Less accumulated amortization 4,811
$ 0
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended October 31, 1997 (Unaudited)
Operating Lease
The Company conducts its operations from facilities that are leased under a five
year lease ending July, 1998. The lease calls for monthly rent payments
commencing September, 1993 of $4,670 per month plus common area maintenance
charges which includes a pro-rata share of real property taxes. The Company
negotiated an amendment to this lease effective August 1, 1994. The terms of
this amendment include the forgiveness of an aggregate of $13,854 and a the
deferral of a like amount to be repaid in monthly installments commencing
August 1, 1995. The Company has an option to extend the lease for an additional
five year period.
Rent expense amounted to $ 10,793 and $27,611 for the three months ended October
31, 1997 and October 31, 1996 respectively.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases at October 31,
1997 are:
Years Ending Capital Operating
April 30, Lease Lease Total
1998 0 30,396 30,396
1999 0 15,199 15,199
Total Minimum Payments $ 0 $ 45,595 $ 45,595
Note 6 - Notes and Leases Payable
Notes and Leases payable consists of the following:
Leases Payable (See Note 5) $ 0
Notes Payable Stockholders
Unsecured notes payable due on demand with
interest payable at a rate of 6%. $ 46,800
Total Liabilities $ 46,800
Current Portion $ 46,800
<PAGE 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended October 31, 1997 Compared to Three Months Ended
October 31, 1996
Total sales of the Company for the three months ended October 31, 1997 increased
by $169,631 from sales for the three month period ended October 31, 1996.
Cost of goods sold increased $158,682 and gross profits increased by $13,949 for
the three month period ended October 31, 1997 as compared to the three month
period ended October 31, 1996. The gross profit increase was due to the
increase in sales volume, as gross margins fell somewhat to 24% from 29% for
the same period of the prior year.
General and administrative expenses increased by $ 724 for the three month
period ended October 31, 1997 as compared to the three month period ended
October 31, 1996. The net effect of the increase in gross profits and increase
in general and administrative expenses led to a net profit of $72,307 for the
most recent period compared to a net profit of $50,752 for the year earlier
period.
Six Months Ended October 31, 1997 Compared to Six Months Ended October 31, 1996
Total sales of the Company for the six months ended October 31, 1997 increased
by $349,590 from sales for the six month period ended October 31, 1996.
Cost of goods sold increased by $210,987 and gross profit increased by $138,603
for the six month period ended October 31, 1997 as compared to the six month
period ended October 31, 1996. This gross profit increase was due to the
increase in sales volume and gross margin, as gross margins rose somewhat to 30%
from 27% for the same period of the prior year.
General and administrative expenses increased by $85,308 for the six month
period ended October 31, 1997 as compared to the six month period ended October
31, 1996. The net effect of the increases in gross profits and in general and
administrative expenses led to a net profit of $134,923 for the six months ended
October 31, 1997 compared to a net profit of $89,383 for the six month period
ended October 31, 1996.
Liquidity and Capital Resources
The Company has in recent years financed its operations primarily with operating
revenues and loans from various lenders, many of whom are affiliates, and from
the proceeds of exercises in 1993 of Warrants to purchase its Common Stock.
The Company anticipates that revenues from its operations will be sufficient to
satisfy the Company's cash requirements for operations during the next 12
months, except to the extent that increasing orders and sales may require
temporary borrowings to finance such expansion and related costs of employee
compensation and inventory build-up. No assurance can be given, however, that
additional debt or equity financing will not be required or available.
<PAGE 11>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its' behalf by the
undersigned thereunto duly authorized.
PROCESS EQUIPMENT, INC.
By:_________________________
George Cortessis
Secretary
Date: December 2, 1997
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