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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission
File Number
April 30, 2001 0-18980
____________________
PROCESS EQUIPMENT, INC. (formerly PEI, 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 by check mark if disclosure filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The estimated aggregate market value of the registrant's voting stock
held by non-affiliates of the registrant as of June 30, 2001:
$410,000. This estimated market value is based on the average quoted
bid and ask prices of such stock on June 30, 2001. The registrant's
Common Stock has been sporadically quoted in the over-the-counter
market. The quotes reflect inter- dealer trading and are not
necessarily representative of actual transactions or of the value of
Common stock. The number of shares of the registrant's Common Stock
outstanding as of June 30, 2001 is 3,644,800.
Documents incorporated by reference: See page #26
PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. THESE INCLUDE
STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, FUTURE
EVENTS OR PERFORMANCE AND ALL OTHER STATEMENTS WHICH ARE OTHER
THAN STATEMENTS OF HISTORICAL FACT, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING WORDS SUCH AS "BELIEVES, "ANTICIPATES,"
"EXPECTS," "ESTIMATES," "PROJECTS," "WILL," "MAY," "MIGHT" AND WORDS OF
A SIMILAR NATURE. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
REPORT REFLECT MANAGEMENT'S CURRENT BELIEFS AND EXPECTATIONS ON THE
DATE OF THIS REPORT. ACTUAL RESULTS, PERFORMANCE OR OUTCOMES MAY
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS.
History
Process Equipment, Inc. (the "Company") was incorporated as Sharon
Capital Corporation ("Sharon") on September 21, 1989 under the laws of
the State of Nevada. Sharon was a "blind pool/blank check" corporation
organized for the purpose of purchasing, merging with or acquiring a
business or assets from another company. On March 1, 1990, Sharon
completed a public offering of 36,000 Units, the net proceeds from which
were approximately $148,760. (See Item 5). In July, 1990, Sharon was
changed to PEI, Inc. In November, 1990, PEI was changed to Process
Equipment, Inc.
On April 18, 1990, Sharon acquired all of the outstanding shares of
Common Stock of Process Engineers, Inc., a California corporation
("Process Engineers"), in exchange for the issuance of 2,144,000 shares
of Sharon's Common Stock. As part of the acquisition, Sharon's
officers and directors resigned and were replaced by the officers and
directors of Process Engineers. For present purposes, the business of
the Company is the business of Process Engineers Inc., its wholly owned
subsidiary.
Process Engineers' business was founded in 1957 in Oakland,
California. Initially, the principal business was as manufacturer's
representative for various tanks, valves, fittings and equipment sold
to the dairy industry. In 1966, Process Engineers was incorporated to
carry on the business. In 1970, new owners added engineering and
manufacturing capabilities to Process Engineers that were targeted on
the dairy industry.
In 1973, Process Engineers relocated to larger quarters in Hayward,
California to commence the manufacture of specialty stainless steel
products and systems for the food, wine and dairy industries. It also
became a distributor for products of ITT Grinnell, Waukesha, Demoisy,
Europress, Pera and Stone. The addition of these lines allowed Process
Engineers to engineer systems and distribute components for a wide
range of needs in the food and wine industries. In subsequent years, it
designed and supplied processing systems to Del Monte and Dole for
pineapple processing plants, designed and built an egg custard plant and
a turn-key cheese manufacturing facility for the California Dairyman's
Co-op.
In September 1989, Dr. Robert Lundak, George Cortessis and
H. Douglas Power purchased 94.8% of the shares of Process Engineers.
Mr. Power had been an officer of the corporation since 1981. Dr. Lundak
and Mr. Cortessis had substantial previous experience in other
companies with bio-technology products and services. (See Item 10). Mr.
Power resigned from the office of President of the Company during July,
1991 and is no longer employed by the Company. On January 1, 1993 he
resigned as director of the Company.
During the year ended April 30, 1993, 432,000 Class A and 432,000
Class B Common Stock Purchase Warrants and 3,600 Underwriter's Warrants
were exercised. The Company received net proceeds of $1,069,074.
On September 23, 1994, Dr. Robert Lundak resigned as CEO and
Chairman of the Board of Directors and is no longer employed by the
Company.
Business
The Company designs and manufactures sanitary stainless steel
systems used for manufacturing processes in the wine, food and
bio-technology industries. The Company also serves as a distributor
for pumps, valves and other components used in such systems and for
winery equipment imported from Europe. In addition, it provides
repair and other services related to such equipment and systems.
A majority of the Company's revenues have historically come from
its business of providing products and services for the wine and food
industries, with wineries accounting for most of those revenues.
However, the Company in recent years has developed and marketed
bio-technology products and services which utilize components and
technologies similar to those used in the Company' wine and food
business. Currently, approximately 15% of the Company's revenues
are from sales of products and services for the biotechnology industry.
The wine business is seasonal and the Company's wine-related
activities and sales are largely confined to the time periods
immediately prior to and during the August-October "crush" season.
Sales of winery equipment tend to be concentrated in the months
preceding August and servicing of the equipment tends to concentrate
during the crush season. Consequently, the Company's winery business
is largely dormant during significant portions of the spring and winter
months.
Manufacturing
Components for systems sold by the Company are acquired from
various third party suppliers and then modified and combined into
systems by the Company's production personnel at the Company's plant in
Hayward, California. The Company's employees are particularly skilled
in precise welding, machining and other fabrication of stainless steel.
The systems are also tested and installed by the Company's personnel.
The products distributed by the Company carry various warranties,
generally for a one-year period, provided by their manufacturers.
At June 30, 2001, the Company had four employees engaged in design,
production, testing and field service activities.
Marketing
At June 30, 2001, the Company's sales force consisted of two
employees. The Company has focused its marketing efforts on the wine
and bio-technology industries within California. Emphasis has been
placed on the Company's knowledge of wine processes and systems
engineering, its fabrication capability and its commitment to service.
Wineries are typically capital intensive requiring specialized
machinery such as destemmers, membrane presses, filter systems,
crushers, tanks, pumps, bottling equipment and piping. The wine
industry is divided into "premium" and "jug" table wines. The Company
has focused its marketing efforts on the premium wine segment.
The Company presently has approximately 450 winery customers.
The Company has marketed its bio-technology products to smaller
bio-tech companies that do not have sufficient in-house expertise to
design or fabricate their own equipment or systems. The Company has
focused marketing efforts on equipment for fermentation, separation and
purification. Marketing is carried out by the Company's sales force and
has been concentrated in California, although the Company has executed
major bio-tech projects in Washington, Massachusetts and Virginia as
well.
Competition
Numerous companies compete to furnish equipment to the California
wineries. Many distributors and manufacturer's representatives are
authorized to sell products which compete with those of the Company,
additionally many engineering firms can competently design similar
products to those designed and built by the Company.
The bio-technology equipment and parts industry consists of diverse
group of suppliers such as ABEC Inc., New Brunswick Scientific,
Millipore Corp, B. Braun Biotech and ITT Sherotec Inc.. Management
believes that no single company, or small group of companies, now
dominates the market for bio-technology equipment. The market is highly
fractured, with numerous small companies that market one or a small
number of types of systems. The larger bio-technology companies have the
capacity to fabricate their own equipment and parts in-house and
smaller companies frequently use engineering firms to custom design and
specify components which are then assembled by the companies themselves
or by contract fabricators.
A small number of fabrication companies exist that will custom
build bio-technology systems from the designs or packages furnished by
customers. Typically, the fabrication companies provide limited
warranties and no ongoing repair, servicing or support.
The Company believes that important competitive factors in the
markets for winery and bio-technology components and systems marketed
by the Company include pricing, product effectiveness and reliability,
servicing capabilities and general marketing abilities. Management
believes a particular competitive strength of the Company is its
capacity to provide complete turn-key systems to its customers.
Government Regulation
The Company is subject to various state and federal laws,
regulations and guidelines relating to safe working conditions and
manufacturing practices. While the Company's bio-technology customers
are generally subject to extensive regulation by the U.S. Food and Drug
Administration, which may affect their specifications for products
supplied by the Company, the Company's products and operations are not
directly subject to such regulation.
Patents and Trade Secrets
The Company presently has no patents on its products and does not
believe that having patents or other proprietary technology is important
to the success of its planned operations.
Employees
At June 30, 2001, the Company had eight full-time employees.
ITEM 2. PROPERTIES Process Engineers leases a 15,600 square foot
buildingin Hayward, California which contains 3,600 square feet of
administrative,engineering and sales space and 12,000 square feet of
inventory and manufacturing space.
The manufacturing space has been designed to accommodate the special
needs of the Company's inert gas welding and large system assembly.
Rent payments of $5,507 per month plus common area maintenance charges
are owed under the terms of a lease from September 1998 to August 2003,
the end of the lease term.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock
The Company's Articles of Incorporation authorize the issuance of
25,000,000 shares of Common Stock, $.001 par value per share. At June
30, 2001, 3,644,600 shares were outstanding. Shares of Common Stock (i)
have equal rights to dividends from funds legally available therefor,
when, as and if declared by the Company's Board of Directors, (ii) are
entitled to share ratably in any remaining assets of the Company
available for distribution to shareholders upon the Company's
liquidation and (iii) do not have preemptive, subscription or conversion
rights. All shares of Common Stock now outstanding are fully paid for
and non-assessable.
All holders of Common Stock have one vote per share on all matters
submitted to a vote of stockholders. Stockholders do not have rights to
cumulate their votes in the election of directors under the Company's
Articles of Incorporation or applicable provisions of the Nevada General
Corporation Law. However, under Section 2115 of the California
Corporations Code, specific provisions of the California General
Corporation Law, including mandatory cumulative voting rights of
shareholders, are made applicable to "pseudo-California" corporations
incorporated under laws of other states which meet certain tests. The
tests are that the average of specified property, payroll and sales
factors (generally relating to the extent of activities in California)
exceed 50% on a consolidated basis during the corporation's latest full
income year, and that more than one-half of the corporation's
outstanding voting securities are held of record by persons
having addresses in California.
Market for Securities
The Company's shares are quoted sporadically in the over-the-
counter market with relatively small volumes of actual trading. Market
makers and other dealers provide bid and ask quotations for the
Company's securities, and list such quotations in the National Daily
Quotation Sheets, commonly referred to as the inter-dealer "pink
sheets."
From completion of the Company's initial public offering on
March 1, 1990, the Company's securities were quoted sporadically in the
Over-The-Counter (OTC) market, with relatively small volumes of actual
trading. Since September 1990, the Company's Common Stock has also been
sporadically quoted on the NASD Electronic Bulletin Board under the
symbol "PEQM". These quotes were reported in the inter-dealer "pink
sheets," and reflect inter-dealer prices without retail mark-up, mark-
down or commission; are not necessarily representative of actual
transactions or of the value of the Company's securities; and may not be
based on any recognized technique of valuation used in the investment
banking community.
The following table sets forth, for the periods indicated, the high and
low sale prices for the Company's Common Stock as reported by the
National Quotation Bureau, Inc.
FISCAL YEAR ENDED APRIL 30, 2000 LOW HIGH
1st Quarter........ ......................$ 0.20 0.24
2nd Quarter................................ 0.23 0.23
3rd Quarter................................ 0.20 0.20
4th Quarter.................................0.375 0.50
FISCAL YEAR ENDED APRIL 30, 2001 LOW HIGH
1st Quarter................ ........ ... $ 0.19 $ 0.19
2nd Quarter.......................... ..... 0.19 0.19
3rd Quarter....... ................. ..... 0.19 0.22
4th Quarter......................... ...... 0.15 0.17
As of June 30, 2001, there were approximately 500 holders of record
of the Company's then outstanding shares of Common Stock.
Transfer Agent
The transfer agent for the Common Stock is American Stock Transfer
& Trust Company, 40 Wall Street, New York, New York 10005.
Dividends
The Company does not presently anticipate that it will pay
dividends at any time in the foreseeable future. The payment of any
dividends will depend, among other things, upon the Company's earnings,
assets and general financial condition, and upon other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Year Ended April 30, 2001 Compared to Year Ended April 30, 2000
Total sales of the Company for the year ended April 30, 2001
decreased by $302,320 from sales for the year ended April 30, 2000.
This decrease was due to a $127,294 decrease (from $1,850,985 to
$1,723,691) in sales of wine and food products and services as well as
by a $175,026 decrease (from $480,949 to $305,923) in sales of bio-
technology products and services. Cost of goods sold decreased $136,474
and the gross profit decreased by $165,848 for the year April 30, 2001
as compared to the previous year. Gross profit as a percentage of
revenue for 2001 fell to 24.8% compared to 28.7% for 2000.
Management believes the cause of the year to year decline in gross
revenues Was a general weakening of demand for capital equipment in the
Food, Wine and Biotechnology industries. Management believes the cause
of the year to year decline in gross margin was an increase in
competitive price pressure resulting from weakened demand for capital
equipment.
General and administrative expenses increased $30,390 (to $531,181
from $500,791)for the year ended April 30, 2001 as compared to the
previous year. The increase in general and administrative expenses
reflect increased sales commissions paid (increased by $19,344), and
increased marketing expenses (increased by $14,367).
Year Ended April 30, 2000 Compared to Year Ended April 30, 1999
Total sales of the Company for the year ended April 30, 2000
decreased by $218,831 from sales for the year ended April 30, 1999.
This decrease was due to a $49,565 decrease (from $1,900,550 to
$1,850,985) in sales of wine and food products and services as well as
by a $169,266 decrease (from $650,215 to $480,949) in sales of bio-
technology products and services.
Cost of goods sold decreased $117,980 and the gross profit
decreased by $100,850 for the year April 30, 2000 as compared to the
previous year. Gross profit as a percentage of revenue for 2001 fell to
28.7% compared to 30.2% for 1999.
General and administrative expenses decreased $91,812 (to $500,791
from $592,603)for the year ended April 30, 2000 as compared to the
previous year. The decrease in general and administrative expenses
reflect primarily decreased costs for employee compensation and payroll
taxes (decreased by $ 82,800) and bad debt write-off (decreased by
$ 30,161).
Because the company's personnel, processes, equipment, materials and
related technology utilized in service to both the Wine/Food and the
Biotechnolgy industries are quite similar, the company makes virtually
no distinction in its' sales, marketing, engineering or accounting
activities to segment the activities of the company between Wine/Food
and Biotechnology industries.
The above break- out of market segment revenues is presented for
informational purposes only. Trends in industry specific revenue volume
should therefore, not be construed to indicate any information other
than historical fact.
Liquidity and Capital Resources
The Company has in recent years financed its operations primarily
with operating revenues.
The Company anticipates that revenues from its operations will be
sufficient to satisfy the Company's cash requirements for operations
during the foreseeable future, 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.
Year-to-year fluctuations in various cash-flow category line items were
the result of several factors. Net income declined substantially as a
result of declining revenues and margins as well as increased general
and administrative expenses. Fluctuations in cash-flow category line
items such as decreases in accounts receivable and accounts payable
correlated approximately to the decrease in revenues, albeit subject to
timing differences.
Because of the size and schedule requirements of particular projects
Undertaken by the company, a significant time lag occurred between
inventory build-up related outlays and revenue recognition related to
these projects. Due to the variability of the timing of these cash flows
as compared with the date certain used for reporting purposes,
significant fluctuations of individual line item cash flows year-over-
year are apparent. Additionally, the interaction between the size and
timing of the placement of customer orders bearing customer deposits and
the various schedule requirements attendant to these orders, caused
irregularity in reported customer deposit and inventory increase cash-
flows.
Reported pre-paid expenses fluctuated based on the various timing
differences existing between the company's fiscal reporting period and
the somewhat variable schedules of the required pre-payments for such
administrative expenses as health and liability insurance premiums, as
well as sales and income tax pre-payments.
Notwithstanding the fact that the company incurred an extraordinary
charge during the fiscal year ended April 1999 as a result of bad debt
write-offs amounting to $30,161, management believes, based on the
historically low (indeed almost non-existent) rate of such defaults,
that the $10,000 reserve made against current accounts receivable, in
respect of the possibility of such defaults, is adequate.
ITEM 7. SELECTED FINANCIAL DATA
The following information has been summarized from financial
information included elsewhere and should be read in conjunction with
such financial statements and notes thereto.
Summary of Statements of Operations of Process Equipment (in thousands
except for per share amount)
Years Ended April 30th
2001 2000 1999 1998 1997
Sales $2,030 $2,332 $2,551 $2,554 $2,018
Gross Profit $ 502 $ 668 $ 769 $ 821 $ 588
Net Income $ 0 $ 105 $ 116 $ 163 $ 107
Net Income
Per Share $ 0.00 $ 0.03 $ 0.03 $ 0.05 $ 0.03
Summary of Balance Sheets of Process Equipment (in thousands)
April 30, 2001 2000 1999 1998 1997
Working Capital $1,127 $1,111 $ 948 $ 780 $ 541
Total Assets $1,446 $1,482 $1,445 $1,279 $1,263
Stockholders' Equity $1,205 $1,205 $1,099 $ 983 $ 820
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Public Accountants.....................11
Consolidated Balance Sheets at April 30, 2000 and 2001....12,13
Consolidated Statements of Operations
for the Years Ended April 30, 2001, 2000 and 1999........... 14
Consolidated Statements of Cash Flow
for the Years Ended April 30, 2001, 2000 and 1999............15
Consolidated Statements of Stockholders' Equity
for the Years Ended April 30, 2001, 2000 and 1999............16
Notes to Consolidated Financial Statements................17-19
BAUM & COMPANY, P.A.
Certified Public Accountants
1515 University Drive - Suite 209
Coral Springs, Florida 33071
(954) 752-1712
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Process Equipment, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Process
Equipment, Inc. and Subsidiary as of April 30, 2001 and the related
consolidated statements of operations, stockholders' equity and cash
flows for the years ended April 30, 2001 and 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the over
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Process
Equipment, Inc. and Subsidiary as of April 30, 2001 and the results of
its operations and its cash flows for the years ended April 30, 2001
and 2000 in conformity with generally accepted accounting principles.
/s/ JOEL S. BAUM
Joel S. Baum
Coral Springs, Florida
June 20, 2001
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 30, 2001 and 2000
ASSETS
2001 2000
Current Assets
Cash $ 424,417 $ 376,705
Accounts Receivable
(less allowance for doubtful
accounts of $10,000 for both
2001 and 2000) 265,658 383,763
Inventory (Note 1) 646,371 610,181
Prepaid Expenses 28,209 13,382
Deposits 4,670 4,670
----------------------------
Total Current Assets 1,369,325 1,388,701
----------------------------
Property, Plant and Equipment
(Net of $98,312 and $80,234
accumulated depreciation for 2001
and 2000 respectively) 38,459 55,027
(Notes 1 and 2) ----------------------------
Non-current assets
Deferred tax asset 38,429 38,429
----------------------------
Total Assets 1,446,213 $1,482,157
---------------------------
See Accountant's Report and Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 30, 2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
2001 2000
Current Liabilities
Notes and Lease Payable - Current
Portion (Notes 3 and 4) $ 0 $ 0
Accounts Payable 110,124 135,153
Accrued Expenses 41,132 124,314
Customer Deposits 90,666 17,973
Total Current Liabilities 241,922 277,440
Long Term Liabilities
Notes and Leases Payable
(Notes 3 and 4) -0- - 0 -
Total Liabilities 241,922 277,440
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 ( 48,767) ( 48,340)
Total Equity 1,204,291 1,204,717
Total Liabilities and
Stockholders' Equity $1,446,213 $1,482,157
See Accountant's Report and Accompanying Footnotes.
<Page 12>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended April 30, 2001, 2000 and 1999
2001 2000 1999
Revenues $2,029,614 $2,331,934 $2,550,765
Cost of Goods Sold 1,527,261 1,663,735 1,781,715
Profit 502,353 768,200 769,050
General and Administrative
Expenses 531,181 500,791 592,603
Income (Loss) Before Other
Income (Expenses) and
Provision for Income Taxes(28,828) 167,409 176,447
Other Income (Expenses)
Interest Income 29,202 18,114 9,815
Interest Expense -0- (172) (1,352)
Gain on Asset Disposal -0- -0- 3,102
Other Income -0- -0- 416
Total Other Income
(Expenses) 29,202 17,942 11,981
Income (Loss) Before Provision
for Income Taxes 374 183,351 188,428
Provision for Income Taxes
(Note 1)
Current (800) (22,984) (12,403)
Deferred 0 (57,000) (60,000)
(800) (76,984) (72,403)
Net Income (Loss) $ 426) $ 105,357 $ 116,025
Earnings Per Share
(Note 1) $ 0.00 $ 0.03 $ 0.03
See Accountant's Report and Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended April 30, 2001, 2000 and 1999
2001 2000 1999
Cash Flow from Operational
Activities:
Net Income (Loss) $ 426) $105,357 $ 116,025
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 16,029 7,201 16,703
Changes in Assets and Liabilities
(Increase) Decrease in Accounts
Receivable 118,105 (56,263) 215,977
(Increase) Decrease in Inventory
(36,190) (13,663) (173,038)
(Increase) Decrease in Prepaid
Expenses (14,287) (13,382) 4,470
(Increase) Decrease in Deposits- 0 - - 0 - (2,988)
Decrease in Deferred
Tax Asset - 0 - 57,000 49,071
Increase (Decrease) in Accounts
Payable and Accrued Expenses(108,212) (72,447) 79,239
Increase (Decrease) in Customer
Deposits 72,693 9,053 (6,613)
Net Cash from Operational
Activities 47,712 22,856 298,846
Cash Flows from Investing Activities:
Acquisition of Fixed Assets -0- (9,745) (11,245)
Cash Flows from Financing Activities
Increase (Decrease) in Shareholder
Notes payable - 0 - - 0 - (23,003)
Net Increase (Decrease) in Cash47,712 13,111 264,598
Cash - Beginning 376,705 363,594 98,996
Cash - Ending $ 424,417 $ 376,705 $ 363,594
See Accountant's Report and Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended April 30, 2001, 2000 and 1998
Common Stock Paid In
Accumulated
Shares Amount Capital (Deficit)
Balance April 30, 1998 3,644,800 $3,645 $1,249,412 $ (269,673)
Net Income - 0 - - 0 - - 0 - 116,025
Balance April 30, 1999 3,644,800 3,645 1,249,412 (153,648)
Net Income - 0 - - 0 - - 0 - 105,357
Balance April 30, 2000 3,644,800 3,645 1,249,412 ( 48,340)
Net Income - 0 - - 0 - - 0 - (426)
Balance April 30, 2001 3,644,800 $3,645$1,249,412 $ ( 48,767)
See Accountant's Report and Accompanying Footnotes
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2001, 2000, AND 1998
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.
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. Because virtually all of the goods purchased
by the company and stocked as inventory may be resold with or without
the addition of labor or material inputs, the segmentation of elements
of the company's inventory into classes, such as "raw materials, "work-
in-progress" or "finished goods" is impracticable.
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 $38,000 which expire in the year 2008.
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. Due to its immateriality, no deferred tax adjustment is made.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiary. The consolidation was treated as a reverse
acquisition.
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2001, 2000, AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
Primary earnings per common share are computed by dividing the net
income (loss) by the number of shares of common stock issued and
outstanding. The number of shares used for the fiscal years ended April
30, 2001, 2000 and 1999 was 3,644,800. Because the company has
outstanding but a single class of equity security (common stock) and is
subject to no outstanding stock purchase options, warrants or any other
potentially dilutive rights or instruments, diluted earning per share
and fully diluted earnings per share are exactly equal to primary (or
basic) earnings per share.
Customer Deposits and Revenue Recognition
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. As is the case for other more common and
straightforward transactions, these customer deposit funds are
recognized as revenue when the equipment is completed and title is
transferred to the buyer (or to the buyer indirectly via common
carrier). In certain unusual cases, a negotiated "retention" fraction of
the purchase price of the product is withheld by the buyer pending
equipment installation, start-up or qualification for service. In these
cases, management exercises judgement, based on specific experience
concerning the type and value of the product, and the identity and
requirements of the purchaser, to establish reserve accounts adequate to
offset the potential for any additional expenditures which may be
required. Generally, these reserve accounts are of the same dollar
amount as the "retention" fraction. Therefore, effectively, "retention"
amounts are recognized as revenue upon collection of the "retention"
funds.
NOTE 2 - PROPERTY, PLANT and EQUIPMENT
2001 2000
Transportation Equipment $ 28,225 $ 26,712
Office Equipment 37,391 37,391
Shop Equipment 35,261 35,261
Leasehold Improvement 35,894 35,897
Total 136,771 135,261
Less: Accumulated Depreciation 98,312 80,234
Net Fixed Assets $ 38,459 $ 55,027
NOTE 3 - LEASING ARRANGEMENTS
Operating Lease
The Company conducts its operations from facilities that are leased
under a
five year lease ending August, 2003. The lease calls for monthly rent
payments commencing September, 1998 of $5,509 per month plus common area
maintenance charges which includes a pro-rata share of real property
taxes. Rent expense amounted to $ 88,492, $95,866, and $76,247 for the
years ended April 30, 2001, 2000 and 1999, respectively.
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2001, 2000, AND 1999
NOTE 3 - LEASING ARRANGEMENTS (Continued)
Future Minimum Lease Payments
Future minimum lease payments for operating lease at April 30,
2001 are:
Years Ending Operating
April 30 Lease
2002 88,492
2003 88,492
2004 29,497
Total Minimum Payments $206,481
NOTE 4- Quarterly Financial Data (Unaudited)
Fiscal Year Ended April 30, 2000
Quarter Ended
7/31/99 10/31/99 1/31/00 4/30/00
Gross Revenues $634,570 $705,430 $579,621 $411,769
Gross Profits $190,082 $186,133 $209,787 $ 83,160
Net Income (Loss) $ 49,163 $ 48,602 $ 25,098 ($17,252)
Net Income per Basic
Share $ 0.01 $ 0.01 $ 0.01 ($ 0.00)
Net Income per
Diluted Share $ 0.01 $ 0.01 $ 0.01 ($ 0.00)
Fiscal Year Ended April 30, 2001
Quarter Ended
7/31/00 10/31/00 1/31/01 4/30/01
Gross Revenues $557,637 $719,996 $292,244 $463,048
Gross Profits $135,322 $193,852 $ 87,400 $ 92,332
Net Income (Loss) $ 4,998 $ 39,339 ($ 16,097) ($ 25,428)
Net Income per ]
Basic Share $ 0.00 $ 0.01 ($ 0.00) ($ 0.01)
Net Income per
Diluted Share $ 0.00 $ 0.01 ($ 0.00) ($ 0.01)
NOTE 5- CERTAIN TRANSACTIONS WITH MANAGEMENT
On September 15, 1994, the Company borrowed $30,000 from its officer and
director, George P. Cortessis. On September 15, 1994 the Company issued
an unsecured promissory note to George P. Cortessis in the amount of
$54,800, consolidating this borrowing and an outstanding demand note in
the amount of $24,800 held by George P. Cortessis. The note bears
interest at a rate of 6% per annum and is due on demand. During the
fiscal year ended April 30, 1997 principle payments in the amount of
$8,000 were made by cal year ended April 30, 1998 principle payments in
the amount of $40,000 were made by the company for partial retirement of
this note. During the fiscal year ended April 30, 1999 this note was
repaid in full.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Year ended April 30, 2001 2000 1999
Taxes Paid $ 800 $17,362 $12,403
Interest Paid $ 478 $ 172 $1,352
PART III
ITEM 10. DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors
The following table sets forth the name, age and position of each
executive officer and director of the Company. Each individual has
served in such positions since April 1990.
Name Age Position
George P. Cortessis 42 Secretary, Treasurer
and Director
Directors of the Company are elected by the Company's shareholders
and hold office until their successors have been elected and qualified,
or until their death, resignation or removal. Subject to the terms of
their Employment Agreements, the officers of the Company are elected by
and serve at the pleasure of the Board of Directors.
The following table sets forth the name, age and position of each
officer and director of Process Engineers. Each individual has served
in such positions since May 1990.
Name Age Position
Vacant position Chief Executive Officer,
and Chairman of the Board
George P. Cortessis 42 Vice President, Secretary,
Treasurer and Director
Vacant position Chief Financial Officer
George P. Cortessis. Mr. Cortessis joined Process Engineers, Inc. in
September, 1989 and has historically been responsible for the bio-
technology aspect of the Company's business.
Since 1983, Mr. Cortessis has been continuously employed in the bio-
technology and wine industries. Until March, 1985, he was a process
engineer for Chiron Corporation and designed fermentation, cell
processing and protein purification equipment. From March, 1985, until
February, 1988, he was a project engineer furnishing engineering
services to customers for fermentation and biochemical
processing equipment. From February, 1988 until joining Process
Engineers, Inc., Mr. Cortessis was a Regional Sales Engineer for L. H.
Fermentation, Inc. of Hayward, California and supervised a bio-reactor
sales program for fourteen western states and Canada.
Mr. Cortessis graduated from the University of California - Berkeley
in 1983 with a Bachelor of Science Degree in Chemical Engineering.
ITEM 11. EXECUTIVE COMPENSATION
During the three fiscal years ending April 30, 1998, 2000 & 2001 Mr.
Cortessis each received the following salaries.
Summary of Compensation Table
Name and Principal 2001 2000 1999
Position Salary Salary Salary
George P. Cortessis $65,000 $33,000 $33,000
Secretary and
Treasurer
In addition to the cash compensation shown above, executive officers
of the Company may receive indirect compensation in the form of
perquisites and other personal benefits. For each named officer, such
indirect compensation did not exceed 10% of the officer's salary for any
year shown above.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of the
Company's shares owned beneficially by its executive officers and
directors and by other persons known to own beneficially 5% or more of
the shares as of July 20, 2001.
Number of Percentage
Shares of Shares
Name Owned (a) Outstanding
George P. Cortessis 834,257 22.9%
26569 Corporate Avenue
Hayward, CA 94545
Peter G. Cortessis 264,552 7.3%
26569 Corporate Avenue
Hayward, CA 94545
Paul E. Cahalen 196,000 5.4%
2001 Omega Court, Suite 207-D
San Ramon, CA 94583
All present officers 834,257 22.9%
and directors as a
group (1 person)
(a) Subject to applicable community property laws, all such shares were
owned of record, with sole voting and investment power, by the named
individual and/or by his wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sharon Capital Corporation was organized under the laws of the State
of Nevada on September 21, 1989. Its initial officers and directors
Deborah A. Salerno, Gregg D. Swentor and Charles W. Barkley, and one
other shareholder then purchased a total of 500,000 shares of Common
Stock at a price of $.006 per share. Ms. Salerno and Mr. Swentor
subsequently received salary payments from the Company of $25,000 and
$2,500, respectively. While an officer of the Company, Mr. Barkley was
paid $25,000 in attorney's fees for legal work relating to the Company's
initial public offering.
In September 1989, Dr. Robert L. Lundak, George Cortessis and H.
Douglas Power acquired 94.8% of the outstanding shares of Process
Engineers from Steven H. Jensen, Kenneth F. Brown and Paul E. Cahalen
for a total cash consideration of $260,142.95. Mr. Power had previously
acquired 5.2% of the outstanding Process Engineers shares. In addition,
in connection with the transaction, Process Engineers partially redeemed
shares held by Messrs. Jensen, Brown and Cahalen for promissory notes
in the amounts of $37,500, $37,500 and $25,000 respectively. The notes
bore interest at 10% per annum, payable quarterly, and were satisfied in
September 1992. On April 18, 1990, Dr. Lundak, Mr. Cortessis and Mr.
Power exchanged all of the outstanding shares of Process Engineers for
the issuance by the Company to them and their contractor of 2,144,000
shares of Common Stock. At the time of the exchange, they were named as
officers and directors of the Company.
Dr. Lundak provided personal assets to secure Process Engineer's
$50,000 line of credit at the National Bank of Southern California.
Process Engineers did not issue any note or enter any agreement
securing the assets furnished by Dr. Lundak for this line of credit. On
June 14, 1991, Process Engineers borrowed $45,000 from Dr. Lundak to
help to repay this line of credit pursuant to the terms of an unsecured
promissory note due on demand, which bears interest at nine percent per
annum. As of August 1, 1994, the total amount of this note yet owed by
the company to Dr. Lundak was $26,862, including unpaid principle and
accrued interest. On August 1, 1994, Dr. Lundak forgave the entire
amount due him by the company.
In September 1990, the Company entered into a $145,000 line of credit
with First Interstate Bank. As of May 31, 1991, Process Engineers
borrowed $145,000 from its shareholders and their associates to repay
this line of credit in full. In connection with such borrowings, the
Company issued unsecured promissory notes for $35,000 and $25,000 to its
officer and director, George P. Cortessis, and its director, H. Douglas
Power, respectively. These notes bear interest at a rate of 9% and are
due on demand. As of April 30, 1994 the Company still owed $21,000 of
the note to George Cortessis, this note was surrendered by George
Cortessis in exchange for the issuance of a new promissory note dated
September 15, 1994. Details of this transaction appear below. During
June, 1993, the balance of the $25,000 note issued to Mr. Power was
reduced to $2,500. This balance has been paid in full to Mr. Power.
The Company also issued a 12% promissory note for $85,000 to Peter
Cortessis, who is the father of George P. Cortessis, in return for a
loan of $85,000 to the Company. As of July 15, 1992, this note was
repaid in full using proceeds from Warrant exercises.
On September 15, 1994, the Company issued an unsecured $70,000
promissory note bearing 6% per annum interest and payable upon demand to
Peter G. Cortessis in return for the loan of $70,000 to the Company.
During fiscal year ended April 30, 1999, the remaining balance of this
note was repaid in full.
On September 15, 1994, the Company issued an unsecured $54,800
promissory note bearing 6% per annum interest and payable to George P.
Cortessis in return for the loan of $30,000 to the company and to
consolidate the remaining principle and interest owed by the Company to
Mr. George Cortessis. During the fiscal year ended April 30, 1999 the
remaining balance of this note was repaid in full.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item Number as per
Item 601 of Regulation S-B
3(a) Articles of Incorporation*
3(b) Certificate of Incorporation*
3(c) Bylaws*
3(d) Certificate of Amendment of Articles of Incorporation*
3(e) Certificate of Amendment of Certificate of Incorporation*
4(c) Sample Stock Certificate*
10(a) Transfer Agent and Registrar Agreement*
10(d) Stock Exchange Agreement, dated as of April 6, 1990, among the
Company, Robert L. Lundak, H. Douglas Power and George B.
Cortessis.*
10(e) 1990 Stock Option Plan*
10(f) Employment Agreement dated as of April 18, 1990 between
Process
Engineers and Robert L. Lundak*
10(g) Employment Agreement dated as of April 18, 1990 between
Process
Engineers and H. Douglas Power*
10(h) Employment Agreement dated as of April 18, 1990 between
Process
Engineers and George P. Cortessis*
10(z) Promissory Note Extensions.*
21 Subsidiary *
* Incorporated herein by reference to exhibit of the same number of the
Company's Registration Statement on Form S-18, as amended (Reg. No.
33-31720-NY) declared effective February 25, 1992.
(b) Reports on Form 8-K filed in the Fourth Quarter
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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:
/S/ George P. Cortessis
- --------
George P. Cortessis
Secretary
Dated: August 14,
2001
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated:
Signature
/S/ George P. Cortessis
- --------------------------
George P. Cortessis
Dated: August 14, 2001
Title
Secretary, Treasurer
and Director
(Principle Accounting and Financial Officer)