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 July 31, 1999
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 July 31, 1999
Common Stock, $.001 par value 3,644,800.
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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 July 31, 1999 and April 30, 1999........................... 3
Consolidated Statements of Operations
for the Three Months Ended July 31, 1999 and
July 31, 1998................................................. 4
Consolidated Statements of Cash Flow
for the Three Months Ended July 31, 1999
July 31, 1998................................................. 5
Consolidated Statements of Stockholders' Equity
for the Three Months Ended July 31, 1999...................... 6
Notes to Consolidated Financial Statements.................... 7
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 31, 1999 and April 30, 1999
(Unaudited)
Assets
July 31, April 30,
1999 1999
Current Assets
Cash $ 332,539 $ 363,594
Accounts Receivable - Trade (less
$10,000 Reserve for Bad Debts) 264,739 327,500
Inventory (Note 1) 561,139 569,518
Prepaid Expenses 0 4,670
Deposit 0 0
Total Current Assets 1,158,417 1,292,282
Property, Plant and Equipment
(Notes 1 and 3) 63,838 59,982
Non-Current Assets:
Deffered Tax Asset 69,429 95,429
Total Assets 1,291,684 1,444,693
Liabilities and Stockholders' Equity
Current Liabilities
Notes and Lease payable - current
portion (Notes 5 and 6) 2,772 4,450
Accounts Payable and Accrued
Expenses 134,638 331,914
Customer Deposits (Note 1) 5,750 8,920
Total Current Liabilities 605,067 345,284
Long Term Liabilities
Notes and Leases payable
(Notes 5 and 6) 0 0
Total Liabilities 143,160 345,284
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 1,249,413 1,249,412
Accumulated Deficit 104,534 153,648
Total Equity 1,148,524 1,444,693
Total Liabilities and
Stockholders' Equity 1,291,684 1,444,693
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended July 31, 1999 and 1998
(Unaudited)
July 31, July 31,
1999 1998
Sales 634,570 782,393
Commissions 0 0
Total Revenue 634,570 782,393
Cost of Goods Sold 444,488 569,402
Gross Profit 190,082 212,991
Selling, General and
Administrative Expenses 117,274 136,757
Income from Operations 72,808 76,234
Other Income and (Expense)
Other Income 2,355 419
Interest Expense ( 1,141)
Non-recurring Expense:
Obsolete Inventory Write Off 0 0
Income Before Income Taxes 75,163 75,512
Provision for Income Taxes
Current 0 0
Deffered Tax Provision (26,000) (26,432)
Net Income 49,163 $ 49,080
Net Income Per Share $0.01 $0.01
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months Ended July 31, 1999
(Unaudited)
July 31,
1999
Cash Flow from Operational Activities:
Net Income $ 49,163
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 2,312
51,475
Changes in Assets and Liabilities:
Decrease in Accounts Receivable 62,745
Decrease in Inventory 35,395
Decrease in Prepaid Expenses 0
Increse in Deffered Tax Asset 26,000
Deccrease in Accts Payable and
Accrued Expenses (197,276)
Decrease in Customer Deposits (3,170)
(76,306)
Net Cash Flow from Operational Activities ( 24,831)
Cash Flows from Investing Activities:
Increase in fixed assets 6,224
Net Decrease in Cash 31,055
Cash - Beginning 336,595
Cash - Ending $ 332,539
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended July 31, 1999
(Unaudited)
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (Deficit)
Balance April 30, 1999 3,644,800 $ 3,645 $1,249,412 $(153,640)
Net Income 49,163
Balance July 31, 1999 3,644,800 $ 3,645 $1,249,412 $(104,534)
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 1999 (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 three month period ended July 31, 1999 are not
necessarily indicative of the results that may be expected for the year
ending April 30, 2000. 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, 1999.
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. The Company has federal net operating loss carry forwards,
of approximately $69,429 which expire in the year 2,008.
Under FASB 109, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
Financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Application of FASB 109 requires an allowance
be recognized if there is a question as to the company's ability to use any
and or all of the future tax loss benefits. For presentation of the
current comparative financial statements it has been deemed appropriate to
fully recognize this benefit for each year presented.
Deferred Taxes
The Company incurs a timing difference in depreciation expense due to the
difference in depreciation methods used for financial and income purposes.
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 1999 (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 July 31, 1999
and July 31, 1998.
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 may have funds deposited with foreign vendors for imported
equipment sales.
Note 3 - Property, Plant and Equipment
Transportation Equipment $ 55,592
Office Equipment 102,618
Shop Equipment 37,237
Leasehold Improvement 41,074
Total $261,352
Less: Accumulated Depreciation 197,514
$ 63,828
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 1999 (Unaudited)
Note 5 - Leasing Arrangments
Operating Lease
The Company conducts its operations from facilities that are leased under a
five year lease ending September, 2003. The lease calls for monthly rent
payments commencing September, 1998 of $5,509.67 per month plus common area
maintenance charges which includes a pro-rata share of real property taxes.
Rent expense amounted to $ 22,123 and 17,646 for the three months ended
July 31, 1999 and July 31, 1998, respectively.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases at
July 31, 1999 are:
Years Ending Operating
April 30, Lease
1999 27,548
2000 66,116
2001 66,116
2002 66,116
2003 22,039
Total Minimum Payments 247,935
Note 6 - Notes and Leases Payable
Notes and Leases payable consists of the following:
Toyota Tacoma 1997 $ 13,234
Amount paid (10,452)
Amount due 2,772
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended July 31, 1999 Compared to Three Months Ended July 31, 1998
Total sales of the Company for the three months ended July 31, 1999
decreased by $147,823 from sales for the three month period ended
July 31, 1999.
Cost of goods sold decreased by $124,914 and the gross profit decreased by
$22,909 for the three month period ended July 31, 1999 as compared to the
three month period ended July 31, 1998. The gross profit decrease was due
to the decrease in sales, as gross margin increased to 30.0% from 27.2%
for the same period of the prior year.
General and administrative expenses decreased by $19,483 for the three month
period ended July 31, 1999 as compared to the three month period ended
July 31, 1998. The net effect of the decrease in revenue and decreases
in general and administrative expenses led to a net profit of $49,163 for
the most recent period compared to a net profit of $49,080 for the year
earlier period.
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.
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