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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, 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
October 31, 1999
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, 1999 and April 30, 1999........................ 3
Consolidated Statements of Operations
for the Six Months Ended October 31, 1999 and
October 31, 1998.............................................. 4
Consolidated Statements of Operations
for the Three Months Ended October 31, 1999 and
October 31, 1998.............................................. 5
Consolidated Statements of Cash Flow
for the Six Months Ended October 31, 1999..................... 6
Consolidated Statements of Stockholders' Equity
for the Six Months Ended October 31, 1999..................... 7
Notes to Consolidated Financial Statements.................... 8-11
<PAGE 2>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 1999 and April 30, 1999
(Unaudited)
Assets
October 31, April 30,
1999 1999
Current Assets
Cash $ 403,050 $ 363,594
Accounts Receivable - Trade (less
$10,000 Reserve for Bad Debts) 313,310 327,500
Inventory (Note 1) 580,659 569,578
Prepaid Expenses 9,073 4,670
Vendor Deposits (Note 2) 0 1,682
Total Current Assets 1,306,092 1,292,282
Property, Plant and Equipment
(Notes 1 and 3) 61,284 59,982
Non-Current Assets:
Deferred Tax Asset (Note 1) 46,929 95,429
Total Assets $ 1,414,305 $ 1,444,693
Liabilities and Stockholders' Equity
Current Liabilities
Notes and Lease payable - current
portion (Notes 5 and 6) $ 1,653 $ 4,450
Accounts Payable and Accrued
Expenses 191,183 331,914
Customer Deposits (Note 1) 23,318 8,920
Total Current Liabilities 216,154 345,284
Long Term Liabilities
Notes and Leases payable
(Notes 5 and 6) 0 0
Total Liabilities 216,154 345,284
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 1,249,412 1,249,412
Accumulated Deficit (54,906) (153,648)
Total Equity 1,198,151 1,099,409
Total Liabilities and
Stockholders' Equity $ 1,414,305 $ 1,444,693
See Accompanying Footnotes
<PAGE 3>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended October 31, 1999 and 1998
(Unaudited)
October 31, October 31,
1999 1998
Sales $ 1,340,300 $ 1,547,590
Commissions 0 0
Total Revenue 1,340,300 1,547,590
Cost of Goods Sold 961,972 1,119,937
Gross Profit 378,327 427,653
Selling, General and Administrative
Expenses 231,213 267,482
Income from Operations 147,114 160,171
Other Income and (Expense)
Other Income 5,809 3,849
Interest Expense (1,350)
Prior Period Write-Offs (10,606)
Income Before Income Taxes 152,923 154,064
Provision for Income Taxes
Current Income Taxes (5,632) (11,163)
Deferred Tax Provision (48,500) (42,059)
Net Income $ 98,791 $ 98,842
Net Income Per Share $ 0.03 $ 0.03
See Accompanying Footnotes
<PAGE 4>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended October 31, 1999 and 1998
(Unaudited)
October 31, October 31,
1999 1998
Sales $ 705,430 $ 765,197
Commissions 0 0
Total Revenue 705,430 765,197
Cost of Goods Sold 519,297 550,257
Gross Profit 186,133 214,940
Selling, General and Administrative
Expenses 112,853 130,725
Income from Operations 73,280 84,215
Other Income and (Expense)
Other Income 3,454 3,430
Interest Expense (209)
Prior Period Write-Offs (10,606)
Income Before Income Taxes 76,734 76,830
Provision for Income Taxes
Current Income Taxes (5,632) (4,458)
Deferred Tax Provision (22,500) (22,610)
Net Income $ 48,602 $ 49,762
Net Income Per Share $ 0.01 $ 0.01
See Accompanying Footnotes
<PAGE 5>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Six Months Ended October 31, 1999
(Unaudited)
October 31,
1998
Cash Flow from Operational Activities:
Net Income $ 98,842
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 6,592
105,387
Changes in Assets and Liabilities:
Decrease in Accounts Receivable 15,027
Decrease in Inventory 15,019
Increase in Prepaid Expenses (9,073)
Increase in Deferred Tax Asset (33,258)
Decrease in Accts Payable and
Accrued Expenses (140,731)
Increase in Customer Deposits 14,397
(138,618)
Net Cash Flow from Operational Activities 33,232
Cash Flow from Investing Activities:
Increase in fixed Assets 6,224
Net Increase in Cash 39,456
Cash - Beginning 363,594
Cash - Ending $ 403,050
See Accompanying Footnotes
<PAGE 6>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended October 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 98,795
Balance Oct. 31, 1999 3,644,800 $ 3,645 $1,249,412 $ (54,845)
See Accompanying Footnotes
<PAGE 7>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 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 six month period
ended October 31, 1998 are not necessarily indicative of the results that may
be expected for the year ending April 30, 1999. 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,
1998.
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 $ 46,929 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
or all of the future tax loss benefits. For presentation of the current
comparative financial statement it has been deemed appropriate to fully
recognize this benefit for each year presented.
<PAGE 8>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 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 October
31, 1999 and October 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 has 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 200,068
$ 61,284
<PAGE 9>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended October 31, 1999 (Unaudited)
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 $ 22,122 and $23,189 for the three months ended
October 31, 1999 and October 31, 1998 respectively.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases at
October 31, 1999 are:
Years Ending
April 30, Operating Lease
1999 11,019
2000 66,116
2001 66,116
2002 66,116
2003 22,039
Total Minimum Payments 231,406
Note 6 - Notes and Leases Payable
Notes and Leases payable consists of the following:
Toyota Tacome 1997 $ 13,234
Amount paid 11,581
Amount due 1,653
<PAGE 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended October 31, 1999 Compared to Three Months Ended October
31, 1998
Total sales of the Company for the three months ended October 31, 1999
decreased by $ 59,767 from sales for the three month period ended October 31,
1998.
Cost of goods sold decreased $ 30,960 and gross profits decreased by
$ 28,807 for the three month period ended October 31, 1999 as compared to the
thee month period ended October 31, 1998. The gross profit decrease was due
to the decrease in sales volume as well as decrease in gross margins to 26.4%
compared to 28.1% for the same period of the prior year.
General and administrative expenses decreased by $ 17,872 for the three
month period ended October 31, 1999 as compared to the three month period
ended October 31, 1998. The net effect of the decrease in gross profits and
decrease in general and administrative expenses led to a net profit of
$ 48,602 for the most recent period compared to a net profit of $49,762 for
the year earlier period.
Six Months Ended October 31, 1999 Compared to Six Months Ended October 31,
1998
Total sales of the Company for the six months ended October 31, 1999
decreased by $ 207,290 from sales for the six month period ended October 31,
1998.
Cost of goods sold decreased by $ 157,965 and gross profit decreased by
$ 49,326 for the six month period ended October 31, 1999 as compared to the
six month period ended October 31, 1998. This gross profit decrease was due
to the decrease in sales volume, as gross margins increased
somewhat to 28.23 from 27.6% for the same period of the prior year.
General and administrative expenses decreased by $ 36,269 for the six
month period ended October 31, 1999 as compared to the six month period ended
October 31, 1998. The net effect of the decrease in gross profits and
decrease in general and administrative expenses led to a net profit of
$ 98 791 for the six months ended October 31, 1999 compared to a net profit of
$ 98,842 for the six month period ended October 31, 1998.
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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