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, 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
July 31, 1998
Common Stock, $.001 par value 3,644,800.
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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, 1998 and April 30, 1998................................. 3
Consolidated Statements of Operations
for the Three Months Ended July 31, 1998 and
July 31, 1997....................................................... 4
Consolidated Statements of Cash Flow
for the Three Months Ended July 31, 1998
July 31, 1997....................................................... 5
Consolidated Statements of Stockholders' Equity
for the Three Months Ended July 31, 1998............................ 6
Notes to Consolidated Financial Statements.......................... 7
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 31, 1998 and April 30, 1998
(Unaudited)
Assets
July 31, April 30,
1998 1998
Current Assets
Cash $ 58,145 $ 98,996
Accounts Receivable - Trade (less
$10,000 Reserve for Bad Debts) 704,488 543,477
Inventory (Note 1) 698,959 423,480
Prepaid Expenses 375 4,470
Deposit 776 1,682
Total Current Assets 1,462,743 1,072,105
Property, Plant and Equipment
(Notes 1 and 3) 58,415 62,440
Non-Current Assets:
Deffered Tax Asset 118,068 144,500
Total Assets $1,639,226 $1,279,045
Liabilities and Stockholders' Equity
Current Liabilities
Notes and Lease payable - current
portion (Notes 5 and 6) $ 24,537 $ 23,540
Accounts Payable and Accrued
Expenses 579,027 252,675
Customer Deposits (Note 1) 1,503 15,533
Total Current Liabilities 605,067 291,748
Long Term Liabilities
Notes and Leases payable
(Notes 5 and 6) 1,689 3,913
Total Liabilities 606,756 295,661
Stockholders' Equity
Common Stock, par value $.001;
5,000,000 shares authorized,
3,644,800 issued and outstanding 3,645 3,645
Additional Paid in Capital 1,249,412 1,249,412
Accumulated Deficit ( 220,588) ( 269,673)
Total Equity 1,032,470 983,384
Total Liabilities and
Stockholders' Equity $1,639,226 $1,279,045
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended July 31, 1998 and 1997
(Unaudited)
July 31, July 31,
1998 1997
Sales 782,393 $ 701,467
Commissions 0 0
Total Revenue 782,393 701,467
Cost of Goods Sold 569,402 442,295
Gross Profit 212,991 259,172
Selling, General and
Administrative Expenses 136,757 178,568
Income from Operations 76,234 80,603
Other Income and (Expense)
Other Income 419 92
Interest Expense (1,141) ( 1,300)
Non-recurring Expense:
Obsolete Inventory Write Off 0 (15,980)
Income Before Income Taxes 75,512 63,416
Provision for Income Taxes
Current 0 (800)
Deffered Tax Provision (26,432) (21,396)
Net Income $ 49,080 $ 40,420
Net Income Per Share $0.01 $0.01
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months Ended July 31, 1998
(Unaudited)
July 31,
1998
Cash Flow from Operational Activities:
Net Income $ 49,080
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 2,804
51,884
Changes in Assets and Liabilities:
Increase in Accounts Receivable (161,011)
Increase in Inventory (275,479)
Decrease in Prepaid Expenses 4,095
Increse in Deffered Tax Asset 26,432
Decrease in Deposits 906
Increase in Accts Payable and
Accrued Expenses 326,352
Decrease in Customer Deposits (14,030)
(92,735)
Net Cash Flow from Operational Activities (40,851)
Cash Flows from Investing Activities:
Increase in fixed assets 0
Cash Flows from Financing Activities:
Interest paid 0
Net Decrease in Cash 40,851
Cash - Beginning 98,996
Cash - Ending $ 58,145
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended July 31, 1998
(Unaudited)
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (Deficit)
Balance April 30,
1998 3,644,800 $ 3,645 $1,249,412 $(269,673)
Net Income 49,080
Balance July 31,
1998 3,644,800 $ 3,645 $1,249,412 $(220,588)
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 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 three month period ended July 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,
1998.
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 $98,390 which expire in the year 2,008. The Company also
has California net operating loss carry forwards of approximately $19,678
which expire in the year 2010.
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.
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 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/Loss 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 July 31, 1998 and
July 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 may have funds deposited with foreign vendors for imported
equipment sales.
Note 3 - Property, Plant and Equipment
Transportation Equipment $ 41,514
Office Equipment 104,150
Shop Equipment 37,237
Leasehold Improvement 41,074
Total $223,975
Less: Accumulated Depreciation 165,560
$ 58,415
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
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 1998 (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 $ 17,646 and $23,701 for the three months ended
July 31, 1998 and July 31, 1997, respectively.
Future Minimum Lease Payments
Future minimum lease payments for operating lease at July 31,
1998 are:
Years Ending Operating
April 30, Lease
1999 48,747
2000 66,116
2001 66,116
2002 66,116
2003 66,116
2004 22,039
Total Minimum Payments 335,250
Note 6 - Notes and Leases Payable
Notes and Leases payable consists of the following:
Leases Payable (See Note 5) $ -0-
Notes Payable Stockholders
Unsecured notes payable due on demand
with interest payable at a rate of 6%. $ 16,800
Total Liabilities $ 16,800
Current Portion $ 16,800
$ -0-
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended July 31, 1998 Compared to Three Months Ended July 31, 1997
Total sales of the Company for the three months ended July 31, 1998 increased
by $80,926 from sales for the three month period ended July 31, 1997.
Cost of goods sold increased $127,107 and the gross profit decreased by $46,181
for the three month period ended July 31, 1998 as compared to the three month
period ended July 31, 1997.
General and administrative expenses decreased by $41,811 for the three month
period ended July 31, 1998 as compared to the three month period ended
July 31, 1997. The net effect of the decreases in gross profits and decreases
in general and administrative expenses led to a net profit of $49,080 for
the most recent period compared to a net profit of $40,420 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.
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