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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 January 31, 2000
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
January 31, 2000
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 January 31, 2000 and April 30, 1999................... 3
Consolidated Statements of Operations
for the Three Months Ended January 31, 2000
and January 31, 1999..................................... 4
Consolidated Statements of Operations
for the Nine Months Ended January 31, 2000
and January 31, 1999..................................... 5
Consolidated Statements of Cash Flow
for the Nine Months Ended January 31, 2000................6
Consolidated Statements of Stockholders' Equity
for the Nine Months Ended January 31, 2000................7
Notes to Consolidated Financial Statements............... 8-10
ITEM #2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations.....................................11
Liquidity and Capital Resources...........................12
ITEM #3 SIGNATURES........................................13
<PAGE 2>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
January 31, 2000 and April 30, 1999
(Unaudited)
Assets
January 31, April 30,
2000 1999
Current Assets
Cash $ 475,464 $ 363,594
Accounts Receivable -Trade
(less $10,000 Reserve for Bad Debts) 399,457 327,500
Inventory (Note 1) 567,834 596,518
Prepaid Expenses 9,395 0
Deposits 4,670 4,670
Total Current Assets 1,456,820 1,292,282
Property, Plant and Equipment
(Notes 1 and 3) 55,868 56,982
Non-Current Assets:
Deffered Tax Asset 21,929 95,429
Total Assets 1,534,617 1,444,693
Liabilities and Stockholders' Equity
Liabilities
Notes and Lease payable -
Current portion (Notes 5 and 6) $ 530 $ 4,450
Acounts Payable and Accrued 300,735 331,914
Expenses
Customer Deposits (Note 1) 11,384 8,920
Total Liabilities 312,649 345,284
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 ( 31,089) (153,648)
Total Equity 1,221,969 1,099,409
Total Liabilities and
Stockholders' Equity $ 1,534,618 $ 1,444,693
See Accompanying Footnotes
<PAGE 3
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended January 31, 2000 and January 31, 1999
(Unaudited)
January 31, January 31,
2000 1999
Total Revenues: Sales 579,621 575,226
Cost of Goods Sold 369,834 370,096
Gross Profit 209,787 205,130
Selling, General and Administrative
Expenses 158,811 149,893
Income from Operations 50,976 55,237
Other Income and (Expense)
Other Income Interest 6,622 4,170
Income Before Income Taxes 57,598 59,407
Provision for Income Taxes
Current (8,500) (3,910)
Deffered Tax Provision (24,000) (18,839)
Net Income $ 25,098 $ 36,658
Net Income Per Share $ .007 $ .010
See Accompanying Footnotes
<PAGE 4>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended January 31, 2000 and January 31, 1999
(Unaudited)
January 31, January 31,
2000 1999
Total Revenues: Sales $ 1,920,165 $2,122,237
Cost of Goods Sold 1,335,126 1,480,891
Gross Profit 585,040 641,347
Selling, General and Administrative
Expenses 387,229 433,648
Income from Operations 197,811 207,698
Other Income and (Expense)
Other Income 12,448 5,040
Interest Expense (0) (1,386)
Gain on Asset Disposal 0 3,102
Income Before Income Taxes 210,259 214,454
Provision for Income Taxes
Current (12,498) (15,073)
Deffered Tax Provision (65,002) (60,898)
Net Income $ 122,609 $ 138,483
Net Income Per Share $ .0336 $ .0379
See Accompanying Footnotes
<PAGE 5>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine Months Ended January 31, 2000
(Unaudited)
January 31,
2000
Cash Flow from Operational Activities:
Net Income $ 122,609
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 9,675
132,284
Changes in Assets and Liabilities:
Increase in Accounts Receivable (71,957)
Decrease in Inventory 28,684
Increase in Prepaid Expenses (9,395)
Decrease in Derrered Tax Asset 69,002
Decrease in Accounts Payable and Accrued Expenses (31,179)
Increase in Customer Deposits 2,464
(12,381)
Net Cash Flow from Operational Activities 119,903
Cash Flows from Investing Activities:
Increase in Fixed Assets 8,033
Net Increase in Cash 111,870
Cash - Beginning 363,594
Cash - Ending 475,464
See and Accompanying Footnotes
<PAGE 6>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended January 31, 2000
(Unaudited)
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (Deficit)
Balance April 30, 1999 3,644,800 $ 3,645 $1,249,412 $(153,697)
Net Income 122,608
Balance
January 31, 2000 3,644,800 $ 3,645 $1,249,412 $( 31,089)
See Accompanying Footnotes
<PAGE 7>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 2000 (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 nine month period ended January 31, 2000 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 ordinary 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 Nine Months Ended January 31, 2000
(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 Per Share
Primary earnings per common share are computed by dividing the
net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the three
months ended January 31, 2000 and January 31, 1999.
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, from time to time, funds deposited with foreign
and/or domestic vendors as pre-payments for purchased equipment.
Note 3 - Property, Plant and Equipment
Transportation Equipment $ 55,592
Office Equipment 104,427
Shop Equipment 37,237
Leasehold Improvement 36,404
Total $233,660
Less: Accumulated Depreciation 177,792
$ 55,868
<PAGE 9>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1999
(Unaudited)
Operating Lease
Rent expense amounted to $73,741 and $59,299 for the nine months
ended January 31, 2000 and January 31, 1999 respectively.
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.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases
at January 31, 2000 are:
Years Ending Operating
April 31 Lease
2000 16,595
2001 66,116
2002 66,116
2003 66,116
2004 22,039
Total Minimum Payments 236,982
Note 6 - Notes and Leases Payable
Notes Payable (Truck purchase of
11/29/97 24 months @ 1.9% per annum) $ 530
Total Liabilities $ 530
Current Portion $ 530
<PAGE 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended January 31, 2000 Compared to Three Months Ended
January 31, 1997
Total sales of the Company for the three months ended January 31, 2000
increased by $ 4,395 from sales for the three month period ended
January 31, 1999.
Cost of goods sold decreased by $ 262 and the gross profit increased
by $ 4,657 for the three month period ended January 31, 2000 as
compared to the three month period ended January 31, 1999.
Gross profit margin for the three month period ended January 31, 2000
was 36.2%. This result represents an increase from the company's prior
year quarterly period margin of 35.6%.
General and administrative expenses increased by $8,918 for the three
month period ended January 31, 2000 as compared to the three month
period ended January 31, 1999. This increase was due in large part
to increase in employee headcount.
The increase in sales revenue and general expenses resulted in the
Company realizing a net income from operations of $50,976 for the
three months ended January 31, 2000 as compared to an net income of
$ 59,407 for the three months ended January 31, 1999.
The Company realized a net after tax profit of $ 25,098 for the fiscal
quarter ended January 31, 2000 compared with a net profit of $36,745
for the three months ended January 31, 1999.
Nine Months Ended January 31, 2000 Compared to Nine Months Ended
January 31, 1999
Total sales of the Company for the nine months ended January 31, 2000 decreased
by $ 202,072 from sales for the nine month period ended January 31, 1999.
Cost of goods sold decreased by $ 145,765 and gross profit decreased by
$56,307 for the nine month period ended January 31, 2000 as compared to
the nine month period ended January 31, 1999. Gross profit margin for the
latest nine month period was 30.5%. The current period margin is slightly
higher than the company's historic aggregate margins of 27% to 30%.
General and administrative expenses decreased by $46,419 for the nine month
period ended January 31, 2000 as compared to the nine month period ended
January 31, 1999.
The decrease in sales revenue combined with the decrease in General and
Administrative expenses resulted in the Company realizing a net
income from operations of $197,811 for the nine months ended January 31,
2000 as compared to an net income of $ 207,698 for the nine months ended
January 31, 1999.
The Company realized a net after tax profit of $ 122,609 for the fiscal
quarter ended January 31, 2000 compared with a net profit of $138,483 for
the nine months ended January 31, 1999.
<PAGE 11>
Liquidity and Capital Resources
The Company has in recent years financed its operations primarily with
operating revenues and loans from various lenders, some 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 will be available if required.
<PAGE 12>
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: March 13, 2000
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