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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, 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
October 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 October 31, 2000 and April 30, 2000........................ 3
Consolidated Statements of Operations
for the Six Months Ended October 31, 2000 and
October 31, 1999.............................................. 4
Consolidated Statements of Operations
for the Three Months Ended October 31, 2000 and
October 31, 1999.............................................. 5
Consolidated Statements of Cash Flow
for the Six Months Ended October 31, 2000..................... 6
Consolidated Statements of Stockholders' Equity
for the Six Months Ended October 31, 2000..................... 7
Notes to Consolidated Financial Statements.................... 8-11
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 2000 and April 30, 2000
(Unaudited)
Assets
October 31, April 30,
2000 2000
Current Assets
Cash $ 597,839 $ 376,705
Accounts Receivable - Trade (less
$10,000 Reserve for Bad Debts) 311,453 383,763
Inventory (Note 1) 586,505 610,181
Prepaid Expenses 10,651 13,382
Deposits (Note 2) 4,670 4,670
Total Current Assets 1,506,537 1,384,031
Property, Plant and Equipment
(Notes 1 and 3) 53,538 59,697
Non-Current Assets:
Deferred Tax Asset (Note 1) 14,929 38,429
Total Assets $ 1,575,034 $ 1,482,157
Liabilities and Stockholders' Equity
Current Liabilities
Notes and Lease payable - current
portion (Notes 5 and 6) $ 0 $ 0
Accounts Payable and Accrued
Expenses 313,520 259,467
Customer Deposits (Note 1) 2,181 17,973
Total Current Liabilities 325,246 277,440
Long Term Liabilities
Notes and Leases payable
(Notes 5 and 6) 0 0
Total Liabilities 325,246 277,440
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 (60,286) (105,357)
Total Equity 1,249,788 1,204,717
Total Liabilities and
Stockholders' Equity $ 1,575,034 $ 1,482,157
See Accompanying Footnotes
<page 3>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended October 31, 2000 and 1999
(Unaudited)
October 31, October 31,
2000 1999
Sales $ 1,277,628 $ 1,340,300
Commissions 0 0
Total Revenue 1,277,628 1,340,300
Cost of Goods Sold 951,394 961,972
Gross Profit 326,234 378,327
Selling, General and Administrative
Expenses 269,950 231,213
Income from Operations 56,284 147,114
Other Income and (Expense)
Other Income 12,287 5,809
Income Before Income Taxes 68,571 152,923
Provision for Income Taxes
Current Income Taxes 0 ( 5,632)
Deferred Tax Provision (23,500) (48,500)
Net Income $ 45,071 $ 98,791
Net Income Per Share $ 0.012 $ .027
See Accompanying Footnotes
<page 4>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended October 31, 2000 and 1999
(Unaudited)
October 31, October 31,
2000 1999
Sales $ 719,996 $ 705,430
Commissions 0 0
Total Revenue 719,996 705,430
Cost of Goods Sold 526,144 519,297
Gross Profit 193,852 186,133
Selling, General and Administrative
Expenses 141,078 112,853
Income from Operations 52,773 73,280
Other Income and (Expense)
Other Income 6,565 3,454
Income Before Income Taxes 59,338 76,734
Provision for Income Taxes
Current Income Taxes 0 (5,632)
Deferred Tax Provision (20,000) (22,500)
Net Income $ 39,339 $ 48,602
Net Income Per Share $ 0.011 $ 0.013
See Accompanying Footnotes
<page 5>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Six Months Ended October 31, 2000
(Unaudited)
October 31,
2000
Cash Flow from Operational Activities:
Net Income $ 45,071
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 14,363
59,434
Changes in Assets and Liabilities:
Decrease in Accounts Receivable 72,308
Decrease in Inventory 23,676
Decrease in Prepaid Expenses 2,731
Decrease in Deferred Tax Asset 23,500
Increase in Accts Payable and
Accrued Expenses 54,053
Decrease in Customer Deposits (15,792)
160,476
Net Cash Flow from Operational Activities 219,910
Cash Flow from Investing Activities:
Increase in fixed Assets 1,224
Net Increase in Cash 221,134
Cash - Beginning 376,705
Cash - Ending $ 597,839
See Accompanying Footnotes
<page 6>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended October 31, 2000
(Unaudited)
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (Deficit)
Balance April 30, 2000 3,644,800 $ 3,645 $1,249,412 $(105,357)
Net Income 45,071
Balance Oct. 31, 2000 3,644,800 $ 3,645 $1,249,412 $ (60,286)
See Accompanying Footnotes
<page 7>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 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 six month period
ended October 31, 2000 are not necessarily indicative of the results that may
be expected for the year ending April 30, 2001. 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,
2000.
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 $ 14,929 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.
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 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/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, 2000 and October 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 funds deposited with foreign vendors for imported
equipment sales.
Note 3 - Property, Plant and Equipment
Transportation Equipment $ 27,935
Office Equipment 37,391
Shop Equipment 35,894
Leasehold Improvement 40,844
Total $ 142,064
Less: Accumulated Depreciation 88,496
$ 53,568
<page 9>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended October 31, 2000 (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, 1999 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 $22,122 for the three months ended
October 31, 2000 and October 31, 1999 respectively.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases at
October 31, 2000 are:
Years Ending
April 30, Operating Lease
2001 33,058
2002 66,116
2003 66,116
2004 22,039
Total Minimum Payments 187,329
<page 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended October 31, 2000 Compared to Three Months Ended October
31, 1999
Total sales of the Company for the three months ended October 31, 2000
increased by $ 14,566 from sales for the three month period ended October 31,
1999.
Cost of goods sold increased $ 6,847 and gross profits increased by
$ 7,719 for the three month period ended October 31, 2000 as compared to the
three month period ended October 31, 1999. The gross profit increase was due
to the increase in sales volume as well as increase in gross margins to 26.9%
compared to 26.4% for the same period of the prior year.
General and administrative expenses increased by $ 28,225 for the three
month period ended October 31, 2000 as compared to the three month period
ended October 31, 1999. The net effect of the increase in gross profits and
increase in general and administrative expenses led to a net profit of
$ 39,339 for the most recent period compared to a net profit of $48,602 for
the year earlier period.
Six Months Ended October 31, 2000 Compared to Six Months Ended October 31,
1999
Total sales of the Company for the six months ended October 31, 2000
decreased by $ 62,672 from sales for the six month period ended October 31,
1999.
Cost of goods sold decreased by $ 10,578 and gross profit decreased by
$ 52,093 for the six month period ended October 31, 2000 as compared to the
six month period ended October 31, 1999. This gross profit decrease was due
to the decrease in sales volume and a gross margins decreased to
25.5% from 28.2% for the same period of the prior year.
General and administrative expenses increased by $ 38,737 for the six
month period ended October 31, 2000 as compared to the six month period ended
October 31, 1999. The net effect of the decrease in gross profits and
increase in general and administrative expenses led to a net profit of
$ 45,071 for the six months ended October 31, 2000 compared to a net profit of
$ 98,791 for the six month period ended October 31, 1999.
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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