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, 1999
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, 1999
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 January 31, 1999 and April 30, 1998....................... 3
Consolidated Statements of Operations
for the Three Months Ended January 31, 1999
and January 31, 1998......................................... 4
Consolidated Statements of Operations
for the Nine Months Ended January 31, 1999
and January 31, 1998......................................... 5
Consolidated Statements of Cash Flow
for the Nine Months Ended January 31, 1999....................6
Consolidated Statements of Stockholders' Equity
for the Nine Months Ended January 31, 1999....................7
Notes to Consolidated Financial Statements.................8-10
ITEM #2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations........................................11
Liquidity and Capital Resources..............................12
ITEM #3 SIGNATURES...........................................13
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
January 31, 1999 and April 30, 1998
(Unaudited)
Assets
January 31, April 30,
1999 1998
Current Assets
Cash $ 387,617 $ 98,996
Accounts Receivable -Trade
(less $10,000 Reserve for Bad Debts 268,571 543,477
Inventory (Note 1) 515,335 423,480
Prepaid Expenses 7,530 4,470
Vendor Deposits (Note 2) 0 1,682
Total Current Assets 1,179,053 1,072,105
Property, Plant and Equipment
(Notes 1 and 3) 64,136 62,440
Non-Current Assets:
Deferred Tax Asset 83,602 144,500
Total Assets 1,326,791 1,279,045
Liabilities and Stockholders' Equity
Current Liabilities
Notes and Lease payable - current
portion (Notes 5 and 6) $ 6,049 23,540
Accounts Payable and Accrued 195,427 252,675
Expenses
Customer Deposits (Note 1) 14,371 15,533
Total Current Liabilities 215,847 291,748
Long Term Liabilities
Notes and Leases payable 0 3,913
(Notes 5 and 6)
Total Liabilities 215,847 295,661
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 ( 131,185) (269,673)
Total Equity 1,121,873 983,384
Total Liabilities and
Stockholders' Equity $ 1,337,719 $ 1,279,045
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended January 31, 1999
and January 31, 1998
(Unaudited)
January 31, January 31,
1999 1998
Total Revenues: Sales 575,226 663,773
Cost of Goods Sold 370,096 463,529
Gross Profit 205,131 200,244
Selling, General and Administrative
Expenses 149,893 157,665
Income (Loss) from Operations 55,538 42,579
Other Income and (Expense)
Other Income Interest 4,170 25
Interest Expense (87) (962)
Gain (Loss) on Asset Disposal 0 (83)
Income (Loss) Before
Income Taxes 59,621 41,675
Provision for Income Taxes
Current (3,910) (800)
Deferred Tax Provision (18,839) (14,586)
Net Income $ 36,746 $ 26,289
Net Income Per Share $ .0101 $ .0072
See Accompanying Footnotes
<PAGE 4>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended January 31, 1999
and January 31, 1998
(Unaudited)
January 31, January 31,
1999 1998
Total Revenues: Sales $ 2,122,237 $2,038,173
Cost of Goods Sold 1,480,891 1,395,493
Gross Profit 641,347 642,680
Selling, General and Administrative
Expenses 433,648 432,930
Income from Operations 207,698 209,750
Other Income and (Expense)
Other Income 5,040 23
Interest Expense (1,386) (3,876)
Gain (Loss) on Asset Disposal 3,102 (7,650)
Income Before Income Taxes 214,454 197,400
Provision for Income Taxes
Current (15,073) (800)
Deferred Tax Provision (60,898) (72,992)
Net Income $ 138,483 $ 124,408
Net Income Per Share $ .0379 $ .0341
See Accompanying Footnotes
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine Months Ended January 31, 1999
(Unaudited)
January 31,
1999
Cash Flow from Operational Activities:
Net Income (Loss) $ 138,483
Adjustments to Reconcile
Net Income to Net Cash Used
for Operating Activities:
Depreciation and Amortization 10,158
148,641
Changes in Assets and Liabilities:
Decrease in Accounts Receivable 274,906
Increase in Inventory (91,855)
Increase in Prepaid Expenses (3,060)
Decrease in Deferred Tax Asset 60,898
Increase in Actual Tax (15,073)
Increase in Vendor Deposits 1,682
Decrease in Notes Payable (17,491)
Decrease in Accounts Payable and Accrued Expenses (57,248)
Increase in Customer Deposits 1,162
Net Cash Flow from Operational Activities 282,246
Cash Flows from Investing Activities:
Increase in Fixed Assets 13,978
Increase from Sale of Asset 3,102
Increase from Interest Income 4,501
Cash Flows from Financing Activities:
Principal Payments on Notes and Leases Payable 0
Net Increase in Cash 288,621
Cash - Beginning $ 98,996
Cash - Ending $ 387,617
See and Accompanying Footnotes
<PAGE 6>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended January 31, 1999
(Unaudited)
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (Deficit)
Balance April 30, 1998 3,644,800 $ 3,645 $1,249,412 $(269,677)
Net Income 138,483
Balance
January 31, 1999 3,644,800 $ 3,645 $1,249,412 $(131,185)
See Accompanying Footnotes
<PAGE 7>
PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1999 (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, 1999 are not necessarily indicative of the results that may
be expected for the year ending April 30, 1999. 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 betterment's 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. The Company has federal net operating loss carry forwards, of
approximately $ 83,602 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
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 Nine Months Ended January 31, 1999 (Unaudited)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and it's 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, 1999 and
January 31, 1998.
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 $ 55,592
Office Equipment 104,592
Shop Equipment 37,237
Leasehold Improvement 36,404
Total $233,825
Less: Accumulated Depreciation 174,359
$ 59,466
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PROCESS EQUIPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1998 (Unaudited)
Operating Lease
The Company conducts its operations from facilities that are leased under a
five year lease ending Septmeber, 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 $59,299 and $51,245 for the nine months ended
January 31, 1999 and January 31, 1998 respectively.
Future Minimum Lease Payments
Future minimum lease payments for capital and operating leases at
January 31, 1999 are:
Years Ending Operating
April 31 Lease
1999 16,595
2000 66,116
2001 66,116
2002 66,116
2003 66,116
2004 22,039
Total Minimum Payments 303,098
Note 6 - Notes and Leases Payable
Notes Payable (Truck purchase of
11/29/97 24 months @ 1.9% per annum) $ 6,049
Total Liabilities 6,049
Current Portion 6,049
Long term Liabilities $ 0
<PAGE 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended January 31, 1999 Compared to Three Months Ended
January 31, 1998
Total sales of the Company for the three months ended January 31, 1999
decreased by $88,547 from sales for the three month period ended
January 31, 1998.
Cost of goods sold decreased by $ 93,433 and the gross profit increased by
$ 4,887 for the three month period ended January 31, 1999 as compared to
the three month period ended January 31, 1998. Gross profit margin for the
three month period ended January 31, 1999 was 35.6%. This result represents
a significant increase from the company's prior year quarterly period margin
of 30.2%.
General and administrative expenses decreased by $7,772 for the three month
period ended January 31, 1999 as compared to the three month period ended
January 31, 1998. This decrease was due in large part to decreases in
employee headcount.
Despite the decrease in revenues for the three month period, the Company
realized a net profit of $ 36,745 for the fiscal quarter ended January 31, 1999
compared with a net profit of $26,289 for the three months ended January 31,
1998. Net after tax income, however, increased by $ 14,075.
Nine Months Ended January 31, 1999 Compared to Nine Months Ended
January 31, 1998
Total sales of the Company for the nine months ended January 31, 1999
increased by $ 84,064 from sales for the nine month period ended January 31,
1998.
Cost of goods sold increased by $ 85,398 and gross profit decreased by $1,333
for the nine month period ended January 31, 1999 as compared to the nine month
period ended January 31, 1998. Gross profit margin for the latest nine month
period was 30.2%. The current period margin is slightly higher than the
company's historic aggregate margins of 27% to 30%.
General and administrative expenses increased by $718 for the nine month
period ended January 31, 1999 as compared to the nine month period ended
January 31, 1998.
The decrease in sales revenue resulted in the Company realizing a net income
from operations of $207,698 for the nine months ended January 31, 1999 as
compared to an net income of $209,750 for the nine months ended January 31,
1998.
<PAGE 11>
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.
<PAGE 12>
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 17, 1999
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