UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 0-20549
CHINA PEREGRINE FOOD CORPORATION
(Exact name of registrant as specified in its amended charter)
Delaware 62-1681831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 US Highway 1, North Palm Beach, Florida 33408 USA
(Address of principal executive offices)
(561) 625-1411
Registrant's telephone number
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal
year if changed since last report)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15 (d) of
the Exchange Act during the past 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[ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:
Date Class Shares Outstanding
05/10/00 Common Stock 10,684,443
CHINA PEREGRINE FOOD CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements F-1
Condensed balance sheets as of F-1
March 31, 2000 (unaudited) and December 31, 1999
Condensed statements of operations F-2
(unaudited) for the three months ended
March 31, 2000 and 1999
Condensed statements of cash flows F-3
(unaudited) for the three months ended
March 31, 2000 and 1999
Notes to condensed financial statements (unaudited) F-4
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes In Securities and Use of Proceeds 11
Item 6. Exhibits and reports on Form 8-K 12
SIGNATURES 12
EXHIBITS 13
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
Balance Sheets
December 31, March 31,
1999 2000
------------ ---------
(Unaudited)
Assets
Current assets:
Cash $ 16,854 $ 9,394
Other receivable - 79,728
Prepaid expenses 18,196 62,682
-----------------------------
Total current assets 35,050 151,804
-----------------------------
Property, plant and equipment, net 131,264 130,573
Investment in and advance to Meilijian 1,246,422 1,199,744
Goodwill 229,148 213,161
Licensing rights 214,286 192,857
Deposit 10,000 10,000
-----------------------------
Total assets $ 1,866,170 $ 1,898,139
=============================
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of note payable $ 277,741 $ 175,904
Account payable and accrued liabilities 250,833 229,204
-----------------------------
Total current liabilities 528,574 405,108
Dividend payable 370,039 415,627
Note payable, less current portion 127,500 212,468
-----------------------------
Total liabilities 1,026,113 1,033,203
Shareholders' Equity
Series A convertible preferred stock; par value
$0.001 per share, 500,000 shares authorized, 500,000
shares issued and outstanding 500 500
Series B convertible, 9% cumulative, and redeemable
preferred stock; stated value $1.00 per share,
1,260,000 shares authorized, 1,260,000 shares issued
and outstanding 1,260,000 1,260,000
Series C convertible, 8% cumulative and redeemable
preferred stock, stated value $3.00 per share , 14,904
shares issued and outstanding 44,713 44,713
Series D convertible, 6% cumulative and redeemable
preferred stock, stated value $10.00 per share,
76,250 shares issued and outstanding 762,500 1,262,500
Common stock; at par value $0.001 per share,
20,000,000 shares authorized, 10,278,129 and 10,684,443
shares issued and outstanding 10,278 10,684
Additional paid-in capital 11,256,952 11,887,959
Accumulated deficit (12,360,537) (13,467,725)
Accumulated other comprehensive loss - translation
adjustment (134,349) (133,695)
-----------------------------
Total shareholders' equity 840,057 864,936
-----------------------------
Total liabilities and shareholders' equity $ 1,866,170 $ 1,898,139
=============================
See accompanying notes to financial statements.
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
Statement of Operations
Three Months Three Months
Ended Ended
March 31, March 31,
1999 2000
----------- ------------
(Unaudited) (Unaudited)
Revenue $ - $ -
Cost of revenue - -
---------------------------
Gross profit - -
General and administrative expense 512,652 685,183
Merger transaction expense - -
---------------------------
Loss from operations (512,652) (685,183)
Other income (expense)
Interest expense, net (3,815) (4,909)
Loss on investment in GFP (403,505) -
Loss on investment in Meilijian (41,597) (47,332)
Other - -
---------------------------
Loss before income taxes (961,569) (737,424)
Income tax provision - -
Net loss (961,569) (737,424)
Dividends accrued for Series B preferred stock (28,350) (28,350)
Dividends accrued for Series C preferred stock (5,444) (883)
Dividends paid and accrued for Series D preferred stock (2,051) (340,531)
---------------------------
Net loss applicable to common shareholders $ (997,414) $(1,107,188)
===========================
Weighted average number of common shares outstanding 7,979,103 10,343,018
===========================
Basic and diluted loss per share $ (0.12) $ (0.11)
Comprehensive loss and its components consist of
the following:
Net loss $ (997,414) $(1,107,188)
Foreign currency translation adjustment (1,367) (654)
---------------------------
Total comprehensive loss $ (998,781) $1,107,842)
===========================
See accompanying notes to financial statements.
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
Statement of cash flows
Three Three
Months Months
Ended Ended
March 31, March 31,
1999 2000
--------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(961,569) $(737,424)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 43,065 45,586
Loss on investment in Meilijian 41,597 47,332
Loss on investment in GFP 403,505 -
Stock issuance in exchange for services - 50,000
Issuance of common stock for penalty expense incurred
on Series D Preferred stock - 93,750
Increase (decrease) from changes in:
Stock subscription receivables 235,000 -
Prepaid expenses (64,418) (44,486)
Other receivable - (79,728)
Deposits and others (5,000) -
Accounts payable and accrued expenses 14,185 151,858
-------------------------
Net cash used in operating activities (293,635) (473,112)
-------------------------
Cash flows from investing activities:
Purchase of equipment (29,440) (7,479)
Advances to GFP (234,112) -
-------------------------
Net cash used in investing activities (263,552) (7,479)
-------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 315,000 -
Proceeds of Series D preferred stock 535,000 490,000
Proceeds from stock warrants exercised 30,000 -
Payment of note payable and bank loan (60,299) (16,869)
Net cash provided by financing activities 819,701 473,131
-------------------------
Net decrease in cash and cash equivalents 262,514 (7,460)
Cash and cash equivalents, beginning of period 305,233 16,854
-------------------------
Cash and cash equivalents, end of period $ 567,747 $ 9,394
=========================
Cash paid during the period:
Interest $ 6,452 $ 4,913
=========================
Supplemental disclosure of non-cash activities
Conversion of Series C preferred stock to common stock 216,030 -
Issuance of Series C preferred stock subscribed 135,000 -
Issuance of common stock subscribed 100,000 -
Licensing right acquired through assumption of note
payable 300,000 -
Conversion of accrued services fees to common stock - 173,486
Deemed dividend on Series D preferred stock 324,176
Penalty expense for non-registration of common
underlying Series D preferred stock and warrants 35,845 45,588
Effect of changes of exchange rate on investment and
advances To GFP and Meilijian $ (1,366) $ 645
=========================
See accompanying notes to financial statements.
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the nine months ended March 31,
1999 and 2000, respectively, is unaudited)
1. Presentation of Interim Information
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310
of regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The accompanying unaudited financial
statements reflect all adjustments that, in the opinion of the management,
are considered necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The
results of operations for such periods are not necessarily indicative of
the results expected for the full fiscal year or for any future period. The
accompanying financial statements should be read in conjunction with the
audited consolidated financial statements of the Company included in the
Company's Form 10-KSB for the year ended December 31, 1999.
China Peregrine Food Corporation (formerly Shakespeare Holding, Inc.) (the
Company) was incorporated under the laws of the State of Delaware on April
26, 1996. Shakespeare Holdings, Inc. was a shell company without any
substantial assets and operating activities until it merged with China
Peregrine Enterprises, Ltd. in March, 1997 and the Company changed to China
Peregrine Food Corporation. On February 1, 2000, the Company changed its
name to China Premium Food Corporation.
The Company owns equity interests in two joint ventures in China, 70% in
Green Food Peregrine Children's Food Co. Ltd. (GFP) and 52% in Hangzhou
Meilijian Dairy Products, Co. Ltd.(Meilijian). On January 3, 2000, the
Company commenced to terminate its interest in GFP. Accordingly, the
Company wrote off its investment in and advance to GFP as of December 31,
1999.
The Company's financial statements for the quarter ended March 31, 1999
have been restated based on equity method. Prior financial statements were
prepared on a consolidation basis whereby the Company consolidated GFP and
Meilijian. Subsequent to issuing the 1998 financial statements, the
Company agreed with SEC's position that, despite its ownership of more than
50% equity interest in each of these entities, the Company did not control
these entities due to the influence of the Chinese government owned
minority shareholders. As such, the Company agreed that the equity method
should be used to account for the Company's investment in these foreign
subsidiaries. The restatement did not have an impact on the previously
reported net loss for the quarter ended March 31, 1999.
2. Stock Options
SFAS No. 123 allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income disclosure for employee
stock option grants made in 1995 and future years as if the fair-value-
based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma disclosure provisions of SFAS No. 123.
3. Net Loss per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), which is effective for financial
statements issued for the periods after December 15, 1997, including
interim periods. Net loss per share for the three months ended March 31,
2000 and nine month ended March 31, 2000, respectively does not include the
effects of outstanding stock options and warrants, because such effects are
anti-dilutive.
4. Equity Transactions
On January 27, 2000, the Company issued 100,000 shares of its common stock
pursuant to the exercise of options granted in October 1999 to three non-
employees, who are to provide advisory and consulting services to the
Company. These option agreements provide for the issuance of a total of
1,016,000 shares of common stock pursuant to an S-8 registration statement,
filed October 9, 1999. These options expire on October 17, 2000. Prior to
January 27, 2000, 766,000 options were exercised. The options exercised on
January 27, 2000 were at a price of $0.75 per share.
On February 1, 2000, the Company amended its Rule 506 offering with respect
to the Series D Preferred Stock originally offered on March 9, 1999 and
April 23, 1999, respectively. Pursuant to this amended offering, the
Company issued an additional 50,000 shares of the Series D Preferred Stock
and amended the total number of warrants to be issued by the issuance of
additional warrants for 1,300,000 shares of common stock to the existing
holders of the Company's Series D Preferred Stock. The Series D Peferred
and accompanying warrants were priced at $10.00 per unit and resulted in
proceeds of $490,000 in cash, net of $10,000 of legal and issuance
expenses. The Series D Preferred Stock has a Stated Value of $10.00 per
share and the same conversion feature disclosed before. The warrants for
1,300,000 shares of common stock have an exercise price of $0.625 per share
and an expiration date of January 31, 2003. In connection with this sale,
the Company issued 125,000 shares of its common stock to such holders to
compensate them for the delay in registering the resale of the common stock
underlying the Series D Preferred and the warrants, and 50,000 shares of
common stock to a finder. These shares of common stock are issued at $0.75
per share, the market value on February 1, 2000 for the Company's common
stock.
In addition, Series D preferred stock entitles the holder to convert the
Series D preferred stock into the Company's common stock. The number of
shares of common stock issuable upon conversion of each share of Series D
Preferred Stock shall equal (i) the sum of (A) the Stated Value per share
and (B) at the holder's election accrued and unpaid dividends on such
share, divided by (ii) the conversion price. The conversion price shall be
equal to the lessor of: (i) 100% of the average of the closing bid price of
the Company's common stock for the trading day immediately preceding the
date of issuance of the shares of Series D Preferred Stock to the holders,
or (ii) 80% of the average of the three lowest closing bid prices for the
22 trading days immediately preceding the conversion of the respective
shares of Series D Preferred Stock. In accordance with the Provisions of
EITF 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Commission Ratios", the
issuance of these units resulted in the Company being required to record
deemed dividends of $500,000 over the period from the date of issuance to
the date the preferred stock first becomes convertible. At The Company
recognized $324,176 deemed dividend in the first quarter ended March 31,
2000 and will recognized the remaining $175,824 in the second quarter.
On February 7, 2000, the Company signed agreements with two non-employees
in exchange for the graphic design and legal services provided by these two
professionals to the Company, to issue a total of 131,314 shares of common
stock pursuant to a 1933 Act Form S-8 registration statement which will be
filed by the Company. The shares issued for these agreements are valued at
$0.75 per share, which was the market value of the Company's common stock
on February 7, 2000, the execution date of the agreements
5. Subsequent Events
On April 6, 2000, the Company issued 6,374 shares of common stock, at a
market price of $0.797 per share, in exchange for $6,000 of consulting fees
to a service provider.
On April 7, 2000, the Company closed a Rule 506, Regulation D exempt
offering for 150,000 shares of Series F Convertible Preferred Stock, having
a per share Stated Value of $10.00, and Warrants which entitle the holders
of the Series F Preferred to purchase an aggregate of 3,000,000 shares of
common stock. This offering resulted in net proceeds of $1,480,000, net of
$20,000 of legal and issuance expenses. Each Preferred share is
convertible to the common stock of the Company at a conversion price of
$0.50 per common share, based upon the Stated Value divided by conversion
price times the number of shares to be converted. The Series F Preferred
have no voting rights or redemption features and no dividends rights beyond
those attributable to the Company's common stock. The Warrants for
3,000,000 shares of common stock have an exercise price of $1.00 per share
and are exercisable immediately for a period of three years. The Company
can call 50% of Warrants if its common stock trades at 200% of the closing
price of $0.75 per share on April 7, 2000 for 10 consecutive trading days
and 100% of the Warrants if its common stock trades at 300% of the closing
price of $0.75 per share on April 7, 2000 for 10 consecutive trading days.
In addition, the Company issued a Warrant to a consultant in connection
with this transaction, which entitles the holder to purchase an aggregate
of 1,600,000 shares of common stock at an exercise price of $0.84 per
share. The Warrant is exercisable immediately for a period of three years
and has the same "call" provisions as the investor Warrants described
above. This entire transaction provides for total potential proceeds of
$5,844,000, based upon the issuance of a maximum of 7,600,000 shares of
common stock underlying the Series F Preferred and the Warrants, at an
average price per share of $0.77. The holders of the Preferred and the
Warrants have certain registration rights for the resale of the Company's
common stock underlying the Series F Convertible Preferred and the
warrants.
ITEM 2. Management=s Discussion and Analysis of Financial Condition and
Results of Operations - Three Months Ended March 31, 2000 and 1999
During the first quarter of 2000, ending March 31, the Company
continued to shift its business focus and strategy from the production of
milk products to a Company involved in the marketing and distribution of a
broad range of food products in China, including premium branded items.
In February of 2000, the Company announced an agreement in principle
to acquire the majority equity interest in and control of the operations of
Mandarin Fine Foods Company of Beijing and Shanghai. Mandarin is the
dominant distributor of premium food products to four and five star hotels
throughout China. Mandarin's customers include most of the finest hotels in
China and many top restaurants in Beijing and Shanghai, the two largest and
most advanced cities in China. The bulk of Mandarin's $8 million dollar
sales volume is derived from eight product categories, most of which are
imported from outside China. Mandarin is the largest importer of prime,
aged, U.S. beef to China and represents approximately 60% of all premium
U.S. beef exported to China. Additional products include dairy and cheese,
Italian food dry goods, caviar, smoked salmon, oysters, various other meat
products and seafood, and several pastry and dessert foods. Currently,
Mandarin processes its caviar in China, utilizing local Sturgeon, and
produces its own "fresh" pasta in China. On May 11, 2000, the Company
executed a definitive agreement for the acquisition of Mandarin.
Prior to the year ending December 31, 1999, the Company reported its
financial affairs and those of its Chinese subsidiaries on a consolidated
basis. In connection with prior filings with the Securities and Exchange
Commission, the Company received comments from the Commission's staff that
these financial matters should be reported on an equity method basis rather
than a consolidated basis. The Company has been advised by the Commission's
staff reviewer to report its financial affairs utilizing the equity method.
In order to expedite the process of the review of the SEC filings in question,
the Company made the decision not to seek a further review of the
Commission's staff reviewer's conclusions. Accordingly, the Company has
restated its and its subsidiaries' prior year financial statements presented
in its 10-KSB filing for the year ending December 31, 1999, as well as the
current 10-QSB filing for the quarter ending March 31, 2000, on the equity
method basis.
RESULTS OF OPERATIONS
Financial Condition March 31, 2000
- ----------------------------------
As of March 31, 2000, the Company had an accumulated deficit of US
$13,143,549. As of March 32, 2000, the Company had cash on hand of US $9,394
and reported total shareholders' equity of US $864,936.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
- ---------------------------------------------------------------------------
1999
- ----
The Company's net loss decreased approximately 30% to $737,424 in 2000
from $961,569 in 1999. The Company reported a loss per share of $0.12 in 1999
and $0.11 in 2000. The decrease in the loss per share was due to 1) the write
off of the Company's investment in Green Food Peregrine (GFP), as of
December 31, 1999 (the loss on investment in GFP was $403,505 for the quarter
ended March 31, 1999); 2) increase in general and administrative expenses of
$172,531 in 2000 compared to same period in 1999; and 3) increase in number
of shares of common stock outstanding as of March 31, 2000. As of March
31,2000 there were 10,684,443 shares of common stock outstanding compared
with 8,403,462 shares of common stock outstanding as of March 31, 1999. Due
to the timing of issuance of new shares, however, the weighted average number
of shares of common stock outstanding in 2000 was 10,343,018. The loss per
share in 2000 decreased by approximately 10% compared with 1999.
General and administrative expenses increased by approximately 34% to
$685,183 in 2000 from $512,652 in 1999. This increase reflects the legal
and accounting expenses associated with the restatement of the Company's
financial statements on the equity basis, fund raising exercises activities,
and the preparation and filing of SEC reporting documents by the Company.
Losses on investments in the Company's Hangzhou Meilijian subsidiary
increased approximately 13.7% to $47,332 in 2000 from $41,597 in 1999. The
increase reflected the result of high level of selling and general and
administrative expenses associated with the continuing attempts to penetrate
the market and the introduction of new products in Hangzhou. Gross profit
for the current quarter increased 29.2% from $194,157 in 1999 to $250,984 in
2000, with an 11.3% increase in revenue from $1,121,441 in 1999 to
$1,248,851 in 2000. As a percentage of sales, the cost of sales deceased
from 82.7% in 1999 to 79.1% in 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company reported net cash used in operating
activities of $473,112, net cash used in investing activities of $7,479, and
net cash provided by financial activities of $473,131.
As of March 31, 1999, the Company reported net cash used in operating
activities of $293,635, net cash used in investing activities of $263,552,
and net cash provided by financing activities of $819,701.
Net cash used in operating activities increased approximately 61% to
$473,112 in 2000 from $293,635 in 1999. The increase reflects increased
costs incurred in the three months ended March 31, 2000 supporting the U.S.
operations of the Company.
Net cash used in investing activities decreased approximately 97% to
$7,479 in 2000 from $263,552 in 1999. The decrease mainly was due to the
cessation of advances to support the operations of Green Food Peregrine.
Net cash provided by financing activities decreased 42.2% to $473,131
in 2000 from $818,701 in 2000. The decreased need for fund raising activities
resulted from the cessation of advances to support the operations of Green
Food Peregrine.
Going forward, the Company's primary requirements for cash (other
than for acquisition activities) consist of (1) purchasing transportation
equipment for distribution of its products; (2) expenses related to product
development, marketing and advertising in Shanghai, Hangzhou and other
cities where the Company may enter into strategic alliances with local
dairies for the production of Looney Tunes(tm) milk products; (3) payments of
guaranteed royalty payments to Warner Bros. under existing licensing
agreements; and (4) $300,000 in additional capital contributions to the
Hangzhou Meilijian joint venture. The Company estimates that net cash
provided by current operating activities together with cash on hand will
enable the Company to meet its anticipated cash requirements for the 2000
fiscal year.
On April 7, 2000, the Company received gross proceeds approximating
$1,500,000 to fund its working capital and investment capital needs. These
funds represent the first of a series of investments that are planned and
structured in the form of 3,000,000 stock warrants and 1,600,000 stock
warrants at $1.00 and $0.84 exercise prices, respectively. These warrants
are callable when our shares trade at $1.60 and $2.40, respectively, thereby
enabling the Company to force the exercise and resultant additional
investment of $4,344,000 at an average exercise price of $.94.
The Company currently has monthly working capital needs of $140,000.
This represents a significant reduction resulting from the commencement of
joint venture termination procedures and the elimination of the funding of
Green Food Peregrine's operations. The Company expects Meilijian will soon
be profitable because of new product launches as well as the completion of
the Looney Tunes(tm) production agreements that are now being pursued with
other dairies in China.
In addition, in March of 1999, the Company entered into an exclusive
distribution agreement with Lance Food of Charlotte, NC, for the
distribution of snack foods in China. In December 1999, the Company
received local governmental approval for and established a wholly owned
subsidiary in the the Wai Gao Qiao "Free Trade Zone" in Shanghai, China,
known as China Premium Food Corporation (Shanghai) Company, Ltd. This
subsidiary will handle, among other things, the import and distribution of
Lance snack foods in China. The logistic arrangements have been completed
and the first shipment of Lance snacks is expected to be sent to Shanghai in
May.
Management therefore believes that the Company will have positive cash
flow from operations by the third quarter of 2000, and will not need for
additional funding to support existing operations.
DEBT STRUCTURE
During the process of acquiring from American Flavor China, Inc. the
52% of equity interest in and to Hangzhou Meilijian, the Company issued a
promissory note to assume the American Flavor's debt owed to a supplier.
The face value of that note was $282,637.53 at interest rate of 10.5% per
annum without any collateral attached. The note has a monthly installment
payment of $7,250 with 23 payments and a balloon payment of $159,862.38
on July 15, 2000. The minimum cash payments are $87,000 in 1999 and
approximately $203,362 in 2000. The note has a late charge article that the
Company will be charged by 3% of overdue principal and interest installment
if the note holder does not receive the payment within 15 days of due dates.
EFFECTS OF INFLATION
The Company believes that inflation has not had material effect on
its net sales and results of operations.
EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES
The Company's operating subsidiary, Hangzhou Meilijian, is located
in China. It buys and sells products in China using Chinese renminbi as
functional currency. Based on Chinese government regulation, all foreign
currencies under the category of current account are allowed to freely
exchange with hard currencies. During the past two years of operation,
there were no significant changes in exchange rates. However, there is no
assurance that there will be no significant change in exchange rates in the
near future.
NEW ACCOUNTING STANDARDS NOT ADOPTED YET
Statement of Financial Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective
of which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standard on January 1, 2000
to affect its financial statements.
YEAR 2000 STATEMENT
The Company's project to assess and correct Y2K related issues
regarding the year 2000 has been completed, and the Company has not
experienced any significant Y2K related events. Interactions with other
parties' systems make it difficult to conclude there will not be future
effects. Consequently, at this time, management cannot provide assurances
that the Year 2000 issues will not have an impact on the Company's operations.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 27, 2000, the Company issued 100,000 shares of its common
stock pursuant to the exercise of options granted in October 1999 to three
non-employees, who are to provide advisory and consulting services to the
Company. These option agreements provide for the issuance of a total of
1,016,000 shares of common stock pursuant to an S-8 registration statement,
filed October 9, 1999. These options expire on October 17, 2000. Prior to
January 27, 2000, 766,000 options were exercised. The options exercised on
January 27, 2000 were at a price of $0.75 per share.
On February 1, 2000, the Company amended its Rule 506 offering with
respect to the Series D Preferred Stock originally offered on March 9, 1999
and April 23, 1999, respectively. Pursuant to this amended offering, the
Company issued an additional 50,000 shares of the Series D Preferred Stock
and amended the total number of warrants to be issued by the issuance of
additional warrants for 1,300,000 shares of common stock to the existing
sophisticated and accredited holders of the Company's Series D Preferred
Stock. The Series D Peferred and accompanying warrants were priced at
$10.00 per unit and resulted in proceeds of $490,000 in cash, net of $10,000
of legal and issuance expenses. The Series D Preferred Stock has a Stated
Value of $10.00 per share and the same conversion feature disclosed before.
The warrants for 1,300,000 shares of common stock have an exercise price of
$0.625 per share and an expiration date of January 31, 2003. In connection
with this sale, the Company issued 125,000 shares of its common stock to such
holders to compensate them for the delay in registering the resale of the
common stock underlying the Series D Preferred and the warrants, and 50,000
shares of common stock to a finder. These shares of common stock are issued
at $0.75 per share, the market value on February 1, 2000 for the Company's
common stock.
On February 7, 2000, the Company signed agreements with two non-
employees in exchange for the graphic design and legal services provided by
these two professionals to the Company, to issue a total of 131,314 shares
of common stock pursuant to a 1933 Act Form S-8 registration statement
which will be filed by the Company. The shares issued for these agreements
are valued at $0.75 per share, which was the market value of the Company's
common stock on February 7, 2000, the execution date of the agreements
5. Subsequent Events
On April 6, 2000, the Company issued 6,374 shares of common stock, at
a market prices per share, in exchange for $6,000 of consulting fees to a
service provider.
On April 7, 2000, the Company closed a Rule 506, Regulation D exempt
offering for 150,000 shares of Series F Convertible Preferred Stock, and
Warrants, which entitle the holders of the Series F Preferred to purchase
an aggregate of 3,000,000 shares of common stock, at a price of $10.00 per
stock/warrant unit. This offering was made to sophisticated and accredited
investors and resulted in net proceeds of $1,480,000, net of $20,000 of legal
and issuance expenses. Each Preferred share has a per share stated value of
$10.00 and is convertible to the common stock of the Company at a conversion
price of $0.50 per common share, based upon the Stated Value divided by
conversion price times the number of shares to be converted. The Series F
Preferred have no voting rights or redemption features and no dividends
rights beyond those attributable to the Company's common stock. The Warrants
for 3,000,000 shares of common stock have an exercise price of $1.00 per
share and are exercisable immediately for a period of three years. The
Company can call 50% of Warrants if its common stock trades at 200% of the
closing price of $0.75 per share on April 7, 2000 for 10 consecutive trading
days and 100% of the Warrants if its common stock trades at 300% of the
closing price of $0.75 per share on April 7, 2000 for 10 consecutive trading
days. In addition, the Company issued a Warrant to a consultant in
connection with this transaction, which entitles the holder to purchase an
aggregate of 1,600,000 shares of common stock at an exercise price of $0.84
per share. The Warrant is exercisable immediately for a period of three
years and has the same "call" provisions as the investor Warrants described
above. This entire transaction provides for total potential proceeds of
$5,844,000, based upon the issuance of a maximum of 7,600,000 shares of
common stock underlying the Series F Preferred and the Warrants, at an
average price per share of $0.77. The holders of the Preferred and the
Warrants have certain registration rights for the resale of the Company's
common stock underlying the Series F Convertible Preferred and the warrants.
On May 11, 2000, the Company executed a definitive agreement for the
acquisition of Mandarin Fine Foods Company. The agreement calls for a
56.25% interest in Mandarin to be acquired for the equivalent of $4.5
million. Half of this amount will be in China Premium Foods common stock
valued at $1.75 a share, or $2.25 million. The remainder will be in cash or
China Premium stock, depending on the value of the latter at June 30, 2000.
If the deal is consummated as an all-stock transaction, Mandarin would own
a maximum of 16.6% of China Premium Foods common stock outstanding.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Required by Item 601 of Regulation S-B.
(2) May 11, 2000, Transfer Agreement to acquire Mandarin Fine
Foods Co.
(4) Certificate of Designation for Series F Convertible
Preferred Stock
(27) Financial data schedule
(b) Reports on Form 8-K
Previously filed on January 4, 2000, Re: Management changes.
Previously filed on January 31, 2000 Re" Mandarin Fine Foods
acquisition; Termination of Green Food Peregrine joint venture;
corporate name change.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf of the
undersigned, duly authorized.
CHINA PEREGRINE FOOD CORPORATION
(Registrant)
Date: March 12, 2000
/s/ Roy G. Warren
--------------------------
Roy G. Warren, President