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, 1998
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, 1998
Common Stock, $.001 par value 3,644,800.
<PAGE1>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
January 31, 1998 and April 30, 1997
(Unaudited)
Assets
January 31, April 30,
1998 1997
Current Assets
Cash $ 203,215 $ 138,356
Accounts Receivable -Trade
(less $15,000 Reserve for Bad Debts) 409,106 470,964
Inventory (Note 1) 402,223 352,575
Prepaid Expenses 0 13,048
Deposit on Lease - Building 4,670 9,341
Vendor Deposits (Note 2) 183 0
___________ _________
Total Current Assets 1,019,397 984,276
___________ _________
Property, Plant and Equipment
(Notes 1 and 3) 54,413 46,291
Total Assets $1,073,810 $1,030,567
___________ __________
Liabilities and Stockholders' Equity
Current Liabilities
Notes and Lease payable - current
portion (Notes 5 and 6) $ 52,835 $ 57,201
Accounts Payable and Accrued
Expenses 220,368 255,735
Customer Deposits (Note 1) 8,779 129,881
_________ _________
Total Current Liabilities 281,982 442,817
Long Term Liabilities
Notes and Leases payable
(Notes 5 and 6) 6,678 0
_________ _________
Total Liabilities 288,660 442,817
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 ( 467,907) ( 665,307)
__________ __________
Total Equity 785,150 587,750
Total Liabilities and
Stockholders' Equity $ 1,073,810 $ 1,030,567
___________ ___________
[FN]
See Accompanying Footnotes
<PAGE2>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended January 31, 1998 and January 31, 1997
(Unaudited)
January 31, January 31,
1998 1997
Total Revenues: Sales 663,773 339,123
Cost of Goods Sold 433,529 217,157
________ _______
Gross Profit 200,244 121,966
Selling, General and Administrative
Expenses 157,665 101,475
_______ _______
Income (Loss) from Operations 42,579 20,491
Before Non-Recurring Items
Non-Recurring Items
Prior Period Adjustment 0 0
Forgiveness of Debt 0 0
______ ______
Income (Loss) from Operations 42,579 20,491
Other Income and (Expense)
Other Income 25 98
Interest Expense (962) (1,330)
Gain (Loss) on Asset Disposal (83) 500
Foreign Currency Gains/(Losses) 0 0
_____ ______
Income (Loss) Before
Income Taxes 41,675 19,759
Income Taxes 0 0
Net Income $ 41,675 $ 19,759
__________ __________
Net Income Per Share $0.0114 $0.0054
__________ __________
[FN]
See Accompanying Footnotes
<PAGE3>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended January 31, 1998 and January 31, 1997
(Unaudited)
January 31, January 31,
1998 1997
Total Revenues: Sales $2,038,173 $1,370,589
Cost of Goods Sold 1,395,493 965,591
__________ _________
Gross Profi 642,680 404,997
Selling, General and Administrative
Expenses 432,930 291,432
________ ________
Income from Operations 209,750 113,566
Other Income and (Expense)
Other Income 23 290
Interest Expense (3,876) ( 5,204)
Gain (Loss) on Asset Disposal 7,650 0
Foreign Currency Gains/(Losses) 0 0
________ ________
Income Before Income Taxes 197,400 109,152
Income Taxes 800 0
________ ________
Net Income $ 197,400 $ 109,152
__________ __________
Net Income Per Share $ 0.0542 $ 0.0299
[FN]
See Accompanying Footnotes
<PAGE4>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine Months Ended January 31, 1998
(Unaudited)
January 31,
1998
Cash Flow from Operational Activities:
Net Income (Loss) $ 197,400
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 2,414
___________
199,814
Changes in Assets and Liabilities:
Increase in Accounts Receivable 61,858
Decrease in Inventory (49,648)
Decrease in Prepaid Expenses 17,711
Increase in Vendor Deposits (183)
Increase in Accounts Payable and Accrued Expenses (35,367)
Decrease in Customer Deposits (121,102)
____________
Net Cash Flow from Operational Activities 73,083
Cash Flows from Investing Activities:
Increase in Fixed Assets (10,536)
Cash Flows from Financing Activities:
Principal Payments on Notes and Leases Payable 2,312
Net Increase in Cash 64,859
Cash - Beginning 138,356
____________
Cash - Ending $ 203,215
____________
[FN]
See and Accompanying Footnotes
<PAGE5>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended January 31, 1998
(Unaudited)
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (Deficit)
Balance April 30, 1997 3,644,800 $ 3,645 $1,249,412 $(665,307)
Net Income 197,400
_________ _______ _________ _________
Balance
January 31, 1998 3,644,800 $ 3,645 $1,249,412 $(467,907)
[FN]
See Accompanying Footnotes
<PAGE6>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1998
(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, 1998 are not necessarily indicative
of the results that may be expected for the year ending April 30,
1998. 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, 1997.
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.
<PAGE7>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1998
(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, 1998 and January 31, 1997.
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 $ 47,925
Office Equipment 99,646
Shop Equipment 37,237
Leasehold Improvement 36,404
________
Total $212,212
Less: Accumulated Depreciation 166,799
________
$ 54,413
________
<PAGE8>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1997
(Unaudited)
Operating Lease
The Company conducts its operations from facilities that are leased
under a five year lease ending July, 1998. The lease calls for monthly
rent payments commencing September, 1993 of $4,670 per month plus
common area maintenance charges which includes a pro-rata share of real
property taxes. The Company negotiated an amendment to this lease
effective August 1, 1994. The terms of this amendment include the
forgiveness of an aggregate of $13,854 and a the deferral of a like
amount to be repaid in monthly installments commencing August 1, 1995.
The Company has an option to extend the lease for an additional five
year period.
Rent expense amounted to $51,245 and $44,715 for the nine months ended
January 31, 1998 and January 31, 1997, respectively.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases at
January 31, 1998 are:
Years Ending Capital Operating
April 31 Lease Lease Total
1998 0 14,010 14,010
1999 0 15,199 15,199
_______ ________ ______
Total Minimum Payments $ 0 $ 29,209 $ 29,209
________ ________ ________
Note 6 - Notes and Leases Payable
Notes Payable (Truck purchase of
11/29/97 24 months @ 1.9% per annum) $ 13,234
Shareholder Notes Payble $ 46,800
_________
Total Liabilities $ 60,034
Current Portion $ 53,478
_________
Long term Liabilities $ 6,556
_________
<PAGE9>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended January 31, 1998 Compared to Three Months Ended
January 31, 1997
Total sales of the Company for the three months ended January 31,
1998 increased by $324,650 from sales for the three month period
ended January 31, 1997.
Cost of goods sold increased $216,372 and the gross profit increased
by $78,278 for the three month period ended January 31, 1998 as
compared to the three month period ended January 31, 1997. Gross profit
margin for the three month period ended January 31, 1998 was 30.2%.
This result represents a significant decrease from the company's prior
year quarterly period margin of 35.97%. However, the current period
margin result is slightly greater than the company's historic aggregate
margins of 27% to 30%.
General and administrative expenses increased by $56,190 for the three
month period ended January 31, 1998 as compared to the three month period
ended January 31, 1997. This increase was due in large part to increases
in employee headcount and increased marketing expenses.
Despite the increase in these expenses for the three month period, the
Company realized a net profit of $ 41,675 for the fiscal quarter ended
January 31, 1998 compared with a net profit of $ 19,759 for the three
months ended January 31, 1997.
Nine Months Ended January 31, 1998 Compared to Nine Months Ended
January 31, 1997
Total sales of the Company for the nine months ended January 31, 1998
increased by $ 667,584 from sales for the nine month period ended
January 31, 1997.
Cost of goods sold increased $ 429,902 and gross profit increased by
$237,683 for the nine month period ended January 31, 1998 as compared
to the nine month period ended January 31, 1997. Gross profit margin for
the latest nine month period was 31.5%. The current period margin is
slightly higher than the company's historic aggregate margins of 27%
to 30%.
General and administrative expenses increased by $141,498 for the nine
month period ended January 31, 1998 as compared to the nine month period
ended January 31, 1997. This increase was largely due to increased
employee headcount and marketing expenses.
The increase in sales revenue and gross profit, combined with increases
in general and administrative expenses, resulted in the Company realizing
a net income from operations of $197,400 for the nine months ended
January 31, 1998 as compared to an net income of $109,152 for the nine
months ended January 31, 1997.
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.
<PAGE10>
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 19, 1998