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, 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 July 31, 2000
Common Stock, $.001 par value 3,644,800.
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, 2000 and April 30, 2000........................... 3
Consolidated Statements of Operations
for the Three Months Ended July 31, 2000 and
July 31, 1999................................................. 4
Consolidated Statements of Cash Flow
for the Three Months Ended July 31, 2000
July 31, 1999................................................. 5
Consolidated Statements of Stockholders' Equity
for the Three Months Ended July 31, 2000...................... 6
Notes to Consolidated Financial Statements.................... 7
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 31, 2000 and April 30, 2000
(Unaudited)
Assets
July 31, April 30,
2000 2000
Current Assets
Cash $ 295,905 $ 376,705
Accounts Receivable - Trade (less
$10,000 Reserve for Bad Debts) 463,682 383,763
Inventory (Note 1) 648,482 610,181
Prepaid Expenses 10,023 13,382
Deposit 4,670 4,670
Total Current Assets 1,422,762 1,384,031
Property, Plant and Equipment
(Notes 1 and 3) 69,638 59,697
Non-Current Assets:
Deffered Tax Asset 34,929 38,429
Total Assets 1,522,660 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 307,314 259,467
Customer Deposits (Note 1) 5,631 17,973
Total Current Liabilities 312,945 277,440
Long Term Liabilities
Notes and Leases payable
(Notes 5 and 6) 0 0
Total Liabilities 312,945 277,440
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 1,249,413 1,249,412
Accumulated Deficit 48,341 103,648
Total Equity 1,209,715 1,444,693
Total Liabilities and
Stockholders' Equity 1,522,660 1,444,693
See Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended July 31, 2000 and 1999
(Unaudited)
July 31, July 31,
2000 1999
Sales 557,637 634,570
Commissions 0 0
Total Revenue 557,637 634,570
Cost of Goods Sold 422,315 444,488
Gross Profit 135,322 190,082
Selling, General and
Administrative Expenses 132,546 117,274
Income from Operations 2,776 72,808
Other Income and (Expense)
Other Income 5,722 2,355
Income Before Income Taxes 8,498 75,163
Provision for Income Taxes
Current 0 0
Deffered Tax Provision 3,500 (26,000)
Net Income 4,998 $ 49,163
Net Income Per Share $0.001 $0.013
See Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months Ended July 31, 2000
(Unaudited)
July 31,
1999
Cash Flow from Operational Activities:
Net Income $ 4,998
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 3,691
8,689
Changes in Assets and Liabilities:
Increase in Accounts Receivable (79,919)
Increase in Inventory (38,301)
Decrease in Prepaid Expenses 3,359
Increase in Deffered Tax Asset 3,500
Increase in Accts Payable and
Accrued Expenses 47,847
Decrease in Customer Deposits (12,342)
(75,856)
Net Cash Flow from Operational Activities ( 67,167)
Cash Flows from Investing Activities:
Increase in fixed assets 13,633
Net Decrease in Cash 80,800
Cash - Beginning 376,705
Cash - Ending $ 295,905
See Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended July 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 $( 48,341)
Net Income 4,998
Balance July 31, 2000 3,644,800 $ 3,645 $1,249,412 $( 43,343)
See Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 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
three month period ended July 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
$34,929 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 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.
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 2000 (Unaudited)
Principles of ConsolidationThe 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, 2000 and July 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 may have funds deposited with foreign vendors for
imported equipment sales.
Note 3 - Property, Plant and Equipment
Transportation Equipment $ 40,345
Office Equipment 37,391
Shop Equipment 35,261
Leasehold Improvement 40,844
Total $153,841
Less: Accumulated Depreciation 84,203
$ 69,638
Note 5 - Leasing Arrangements
Capital Lease
The Company leases certain equipment under a noncancellable capital lease that
expires September, 1997. Assets recorded under this lease as of July 31,
1998 consist of the following:
Equipment $ 4,811
Less accumulated amortization 4,811
$ 0
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 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, 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 $22,123 for the three months
ended July 31, 2000 and July 31, 1999, respectively.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases at
July 31, 2000 are:
Years Ending Operating
April 30, Lease
2001 27,548
2002 66,116
2003 66,116
2004 22,039
Total Minimum Payments 181,819
Note 6 - Notes and Leases Payable
Notes and Leases payable consists of the following:
Leases Payable (See Note 5) $ 0
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended July 31, 2000 Compared to Three Months Ended
July 31, 1999
Total sales of the Company for the three months ended July 31,
2000 decreased by $ 76,933 from sales for the three month period
ended July 31, 1999.
Cost of goods sold decreased $ 22,173 and the gross profit
decreased by $54,760 for the three month period ended July 31,
2000 as compared to the three month period ended July 31, 1999.
Gross margin decreased to 24.3% from 30.6% for the same period of
the prior year. The gross profit decrease was due to the decrease
in sales and decrease in gross margin.
General and administrative expenses increased by $10,557 for the
three month period ended July 31, 2000 as compared to the three
month period ended July 31, 1999. The net effect of the decreases
in sales and increases in general and administrative expenses led
to a net profit of $ 4,988 for the most recent period compared to
a net profit of $48,696 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.
