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, 1999
[ ] 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
05/13/99 Common Stock 8,207,178
CHINA PEREGRINE FOOD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements F-1
Condensed consolidated balance sheets as of F-1
March 31, 1999 (unaudited) and December 31, 1998
Condensed consolidated statements of operations F-3
(unaudited) for the three months ended
March 31, 1999 and 1998
Condensed consolidated statements of cash flows F-4
(unaudited) for the three months ended
March 31, 1999 and 1998
Notes to condensed consolidated financial
statements (unaudited) F-5
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 10
Item 6. Exhibits and reports on Form 8-K 13
SIGNATURES 13
EXHIBITS 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
China Peregrine Food Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 748,590 $ 876,033
Accounts receivable, less allowances for doubtful
accounts of $648,504 and $648,449 509,717 485,327
Subscription receivable 235,000 -
Other receivable 73,963 207,286
Inventory 868,238 1,166,498
VAT refund receivable 57,069 53,069
Prepaid expenses 84,877 88,708
Deposits 19,727 10,000
------------------------------
Total current assets 2,597,181 2,886,321
Property, plant and equipment, net 5,806,767 5,699,260
Construction in progress 55,735 90,546
Goodwill 293,096 277,109
Licensing agreement, net - 278,571
Trademark and other deferred expenses 119,827 53,614
Proprietary technology, net 52,242 50,149
Start up costs, net 248,732 -
Total assets $9,173,580 9,335,570
==============================
See accompanying notes to consolidated financial statements.
China Peregrine Food Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan in Meilijian $ 1,425,345 $ 1,425,224
Bank loan in GFP 1,147,523 1,147,426
Current portion of obligation - licensing agreement - 63,750
Current portion of note payable 58,104 59,642
Accounts payable 868,760 1,067,668
Accrued liabilities 1,178,563 1,166,100
Accrued payroll 39,162 49,791
Advances from customers 241,354 255,946
Dividends payable 200,667 236,512
-------------------------------
Total current liabilities 5,159,478 5,472,059
Note payable, less current portion 192,741 175,904
Long-term related party loan 677,583 682,775
Obligation - licensing agreement, less current portion - 191,250
-------------------------------
Total liabilities 6,029,802 6,521,988
Minority interest 1,128,787 917,373
Commitments and contingencies
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, redeemable at
$1,260,000 1,260,000 1,260,000
Series C convertible,8% cumulative and redeemable preferred
stock, stated value $3.00 per share , 56,324 shares issued and
outstanding 250,000 168,970
Series D convertible, 6% cumulative and redeemable preferred
stock, stated value $10.00 per share, 53,500 shares issued and
outstanding - 535,000
Common stock; par value $0.001 per share, 20,000,000 shares
authorized, 7,717,957 and 8,403,462 shares issued and
outstanding 7,718 8,403
Additional paid-in capital 7,427,082 8,087,427
Stock subscribed 235,000 -
Accumulated deficit (7,031,046) (8,028,460)
Translation adjustments (134,263) (135,630)
-------------------------------
Total shareholders' equity 2,014,991 1,896,210
-------------------------------
Total liabilities and shareholders' equity $ 9,173,580 9,335,570
===============================
See accompanying to consolidated financial statements.
China Peregrine Food Corporation and Subsidiaries
Consolidated Statement of Operations
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1999
------------ ------------
(Unaudited) (Unaudited)
Sales $ 160,398 $1,246,413
Cost of goods sold 198,891 1,113,624
---------------------------
Gross margin (loss) (38,493) 132,789
Selling expense 73,727 192,480
General and administrative expense 498,168 765,731
---------------------------
Loss from operations (610,388) (825,422)
Other expense:
Interest expense, net 38,857 86,300
Other, net 94,594 1,456
---------------------------
Loss before income taxes (743,839) (913,178)
Income taxes - -
---------------------------
Loss before minority interest (743,839) (913,178)
Less: losses in subsidiaries attributed to minority interest (91,358) (211,328)
---------------------------
Loss before cumulative effect of change in accounting principle (652,481) (701,850)
Cumulative effect of change in accounting principle - write-off of
start up costs - (259,719)
---------------------------
Net loss $ (652,481) (961,569)
Dividends accrued for Series B preferred stock (28,350) (28,350)
Dividends accrued for Series C preferred stock - (5,444)
Dividends accrued for Series D preferred stock - (2,051)
Net loss applicable to common shareholders $ (680,831) (997,414)
===========================
Loss per share $ (0.13) (0.13)
===========================
Weighted average number of common shares outstanding 5,384,351 7,979,103
===========================
Comprehensive loss and its components consist of the Following:
Net Loss $ (652,481) $ (961,569)
Foreign currency translation adjustment (5,736) (1,367)
---------------------------
Comprehensive loss (658,217) (962,936)
See accompanying notes to consolidated financial statements.
China Peregrine Food Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Three Three
Months Ended Months' Ended
March 31, 1998 March 31, 1999
-------------- --------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (652,481) $ (961,569)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 162,193 493,483
Issuance of stock in exchange for services 61,862 35,000
Minority interest (111,033) (211,415)
Increase (decrease) from changes in:
Accounts receivable 15,658 24,446
Other receivable (64,970) (133,306)
Inventory (3,214) (298,260)
VAT refund receivable 31,525 57,069
Prepaids and other assets 42,425 (56,300)
Deposits 6,661 9,727
Accounts payable 130,747 224,024
Advances from customers 25,552 14,592
Accrued liabilities 39,684 (26,955)
------------------------------
Net cash used in operating activities (315,391) (829,464)
------------------------------
Cash flows from investing activities
Purchase of equipment and machinery (1,721) (31,521)
Additions of construction in progress (34,812)
------------------------------
Net cash used in investing activities (1,721) (66,333)
------------------------------
Increase in notes payable 45,313 -
Increase in related party loan - 5,192
Repayment of note payable - (15,299)
Repayment of loan obligation from licensing agreement - (45,000)
Proceeds of Series C Preferred stock - 135,000
Proceeds of Series D Preferred stock - 500,000
Proceeds from stock warrants exercised - 30,000
Advances from Subscribers 877,500
Proceeds of Section 4(2) private offering - 415,000
------------------------------
Net cash provided by financing activities 922,813 1,024,893
------------------------------
Effect of exchange rate changes on cash (6,508) (1,653)
------------------------------
Net increase in cash and cash equivalents 599,193 127,443
Cash and cash equivalents, beginning of period 435,630 748,590
------------------------------
Cash and cash equivalents, end of period $ 1,034,823 $ 876,033
==============================
Cash paid during the period:
Interest $ 54,257 $ 100,295
Income taxes - -
==============================
Supplemental disclosure of non-cash activities:
An institutional holder of Preferred stock Series C converted 27,010 shares
into 90,505 shares of common stock from January 4, 1999 through to February
23, 1999.
An institutional holder of Preferred stock Series C converted a total of
50,000 shares of Preferred stock Series C into 150,000 shares of common
stock on February 18, 1999 and February 19, 1999, respectively.(25,000
shares per each conversion)
See accompanying notes to consolidated financial statements.
Organization and Business
China Peregrine Food Corporation (the Company) was incorporated under the
laws of the State of Delaware on April 26, 1996.
The Company and its subsidiaries, Green Food Peregrine (GFP) and Hangzhou
Meilijian (Meilijian), are engaged in the processing, marketing and
distribution of dairy products in the People's Republic of China. Among
the equity interest of GFP, the Company accounted for 70% and China
National Green Food Corporation accounted for 30% as of March 31, 1999. In
Hangzhou Meilijian, the Company accounted for 52% of equity interest and a
Chinese joint venture partner accounted for the remaining equity interest
as of March 31, 1999. The business of the Company also involves the
acquisition or construction of other dairy processing plants in cities
located in the People's Republic of China having a population of at least
two million
Note 1 - 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. All significant inter-company accounts and
transactions have been eliminated in consolidation. The minority interest
in the Chinese joint venture has been reported as a separate line item on
the consolidated balance sheet. The consolidated financial statements are
presented in U.S. dollars. Accordingly, the accompanying financial
statements do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation have been
included. Operating results for the three-month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended December 31, 1998.
China Peregrine Food Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 2 - Income Taxes
As of December 31, 1998, for federal income tax purposes, the Company had
approximately $902,832 in net operating loss carryforwards expiring through
2013. The annual utilization of the operating loss carryforward may be
significantly limited due to the adverse resolution, if any, with respect
to the loss carryover provisions of Internal Revenue Code Section 382 in
connection with certain stock issuances by the Company.
Note 3 - Licensing Agreement with Warner Brothers Consumer Products Co.
In January 1999, the Company signed a Master Licensing Agreement with Warner
Brothers Consumer Products Co. and obtained the right to utilize Warner
Brothers' Looney Tunes character images and names in the Shanghai and
Hangzhou greater metropolitan areas. This licensing agreement gives the
Company exclusive rights to such images and names in the defined geographic
regions for use in connection with specified categories of products sold by
the Company's subsidiaries in those areas. The company will introduce
these Looney Tunes products in the Shanghai and Hangzhou markets in the
summer of 1999.
The Company recorded the gross amount of $300,000 as licensing agreement
and an obligation to licensing agreement of $300,000 simultaneously. An
amount of $45,000 was payable upon the signing of this agreement and the
balance should be paid by ten installments of $21,250 per installment
payment on or before the following dates: September 30, 1999; December 31,
1999; March 31, 2000; June 30, 2000; September 30, 2000; December 31,
2000; March 31, 2001; June 30, 2001; September 30, 2001; December 31, 2001
and one final payment of $42,500 on or before March31, 2002.
Note 4 - Transactions in Shareholders' Equity
In January 1999, the Company collected net proceeds of $135,000, net of
issuance expenses of $15,000 and issued 50,000 shares of Preferred stock
Series C accordingly.
In March 1999, the Company collected proceeds of $30,000 which represented
30,000 warrants exercised at a price of $1.00 per share and issued 30,000
shares of common stock accordingly. These warrants were issued in November
1998, as part of the Company's Rule 504 offering of its Series C
Convertible Preferred Stock.
From January 1 to March 31, 1999, the company conducted a private sale of
its common stock and received total proceeds of $415,000 with the issue of
415,000 shares of common stock.
In March 1999, the Company conducted a Rule 506, Regulation D offering to
issue 100,000 shares of its Series D Convertible Preferred Stock, with
possible total proceeds of $1,000,000. The Company also issued 3,500
shares of the Series D Preferred Stock at a price of $10.00 per share to
pay a finders fee to a financial institution. On March 9, 1999, the
Company issued 50,000 shares of the Series D Preferred Stock, with gross
proceeds of $500,000. This offering provides for an additional $500,000 in
gross proceeds upon the occurrence of certain events pertaining to the
filing and effective date of an SB-2 "shelf" registration statement for the
resale of the Company's common stock underlying the Series D Convertible
Preferred.
China Peregrine Food Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 5 - Subsequent Events
On April 16, 1999, the Company filed a SB-2 "shelf" registration statement
with SEC to register the resale of the shares of its common stock
underlying the conversion of the Series D Convertible Preferred Stock and
issued an additional 25,000 shares of its Series D Convertible Preferred
Stock, with gross proceeds of $250,000.
During the months of March and April 1999, the Company negotiated a private
offering for additional equity financing having maximum proceeds of
$2,500,000. That offering will involve the issuance of a new class of
convertible preferred at a purchase price of $2.50 per share. On April 9,
1999, the Company received a "term sheet" for this transaction, which has
been approved by management. The Company has been informed that the
attorneys for the investors' agent are in the process of drafting the
required documentation and that the transaction can be closed by the end of
May 1999.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Three Months Ended March 31, 1999 and
1998
Period from January 1, 1999 to March 31, 1999
- ---------------------------------------------
RESULTS OF OPERATIONS
At March 31, 1999, the Company had an accumulated deficit of $8,028,460.
The Company had cash on hand of $876,033 and reported total shareholders'
equity of $1,896,210.
The Company had net sales of $1,246,413 and a gross profit of $132,789. In
addition to the $1,113,624 of cost of sales, the Company had selling
expenses of $192,480 and general and administrative expenses of $765,731.
After interest expenses of $86,300 and other net expenses of $1,456 and the
cumulative effect of a change in accounting principle of $259,719, the
Company had a net loss of $961,414, resulting in a loss per share of $.13.
As the same as in the prior period, general and administrative expenses for
the three months ended March 31, 1999 have been and are continuing to be a
significant percentage of revenue at this stage of the Company's existence.
Three Month Period Ended March 31, 1999
Compared to Three Month Period Ended March 31, 1998
- ---------------------------------------------------
Revenues increased almost 677% to $1,246,413 in 1999 from $160,398 in 1998.
The main reason for this is the inclusion of the revenues from Meilijian
for the three months ended March 31, 1999.
Cost of goods sold increased approximately 460% to $1,113,624 in 1999 from
$198,891 in 1998. The increase was due mainly to higher revenue that
requires a corresponding increase in cost of goods sold. However, the cost
of goods sold as a percentage of revenue decreased to 89% in 1999 from 124%
in 1998. Consequently, the gross profit ratio increased to 11% in 1999
from negative 24% in 1998. The reason for negative gross profit in 1998
was that the production volume was still under the necessary volume that
would bring the Company to a break-even level.
Selling expenses increased approximately 161% to $192,480 in 1999 from
$73,727 in 1998. This was also due to the inclusion of the operating
results of Meilijian for the three months ended March 31, 1999.
General and administrative expenses increased approximately 54% to $765,731
in 1999 from $498,168 in 1998. The US corporate office's general and
administrative expenses increased approximately 45% to $512,652 in 1999
from $352,313 in 1998. The general and administrative expenses incurred in
the China operations, increased approximately 74% to $253,079 in 1999 from
$145,855 in 1998. This was also due to the inclusion of the operating
results of Meilijian for the three months ended March 31, 1999. Overall,
as a percentage of total revenue, the general and administrative expenses
decreased to 61% in 1999from 311% in 1998.
Interest expense increased approximately 122% to $86,300 in 1999 from
$38,857 in 1998. The increase was due to the inclusion of the operating
results of Meilijian for the three months ended March 31, 1999.
Consequently, the net loss applicable to the common shares increased
approximately 46% to $997,414 in 1999 from $680,831 in 1998. The net loss
to the common shares as a percentage of revenue decreased to 80% in 1999
from 424% in 1998.
The Company reported a loss per share of $0.13 in 1999 and $0.13 in 1998.
The status quo in the loss per share was due to new issues of common
shares. As of March 31, 1998 there were 5,464,272 shares of common stock
outstanding and as of March 31, 1999 there were 8,403,462 shares of common
stock outstanding. Due to the timing of issuance of new shares, the
weighted average number of common shares outstanding in 1999 was only
7,979,103. The loss per share in 1999 remained approximately constant
compared to that in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31 1998, the Company reported that net cash used in operating
activities was $315,391 and net cash provided by financial activities was
$922,813 with a negative $6,508 effect of exchange rate changes on cash.
As of March 31, 1999, the Company reported that net cash used in operating
activities was $829,464, net cash used in investing activities was $66,333
and net cash provided by financing activities was $1,024,893 with a
negative $1,653 effect of exchange rate changes on cash.
Net cash used in operating activities decreased 136% to $829,464 in the
first three months of 1999 from $315,391 used in operating activities in
the same period of 1998. The cash used in operating activities decreased
mainly due to net losses from operating activities of $961,569.
Net cash used in investing activities increased to $66,333 in the first
three months of 1999 from $1,721 in the same period of 1998.
Net cash provided by financing activities increased to $1,024,893 in the
first three months of 1999 from $922,813 in the same period of 1998. The
major reason for this increase was due to many fund raising exercises
conducted in the first three months of 1999, compared to the advance from
subscribers of $877,500 during the same period in 1998.
The Company's requirements for cash (other than for acquisition activities)
consist of (1) purchasing transportation equipment for distribution of its
products; (2) expenses relating to product development, marketing and
advertising in Shanghai and, to a lesser extent, in Hangzhou; and (3)
repaying loans to state-owned Chinese banks in the aggregate amount of
approximately $1.5 million by the end of 1999.
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 subsidiaries, Green Food Peregrine and Hangzhou
Meilijian, are located in China. They buy and sell 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.
YEAR 2000 STATEMENT
We are currently in the process of identifying, evaluating and implementing
changes to computer systems in the United States and the Green Food
Peregrine facility in Shanghai, People's Republic of China, as necessary.
At present, the operation of the Company's Hangzhou facility does not
utilize computers. This issue affects computer systems that have date
sensitive software programs or chipsets that may not recognize the year
2000. Systems that do not recognize such information properly could
generate erroneous data or cause a system to fail, resulting in an
interruption of normal business activities.
We have arranged with a third party vendor to conduct a comprehensive
analysis of the Company's in house computers with respect to potential Year
2000 problems. Our internal analysis has revealed the existence of one
micro computer which, owing to its age, bears a high risk of date sensitive
operation. We anticipate the completion of the third party analysis prior
to the end of the 1999 second quarter, and immediate remediation, if
necessary, owing to the small number of micro computers (less than 10)
utilized by the Company and its subsidiaries. Given the benefit to the
Company of utilizing technology more advanced than exists in its present
computers, and the utilization of readily available "off the shelf"
hardware and software, the Company is prepared to upgrade or replace all
problem computers immediately, where appropriate.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Working Capital Funding
- -----------------------
Between January 1, 1999 and March 31, 1999, the Company issued 415,000
shares of its Common Stock to six individual investors. All investors
receiving these shares were known to the Company and are "accredited"
investors. The proceeds from this exercise aggregated $415,000. These
shares of Common Stock were issued in reliance upon the exemption from
registration provided in Section 4(2) of the Securities Act of 1933, and
the proceeds therefrom were used for general working capital.
Funding of Increase in Company's Equity Interest in Green Food Peregrine
Joint Venture
- ------------------------------------------------------------------------
On May 2, 1998, the Company approved and ratified an agreement between the
Company and China National Green Food for the increase of the Company's
equity interest in Green Food Peregrine from 70% to 76.92%. This change in
the ownership ratio will take place upon the payment of an additional US
$1,500,000 in registered capital by the Company over an eighteen month
period. Since Chinese government regulations required approval of this
change of the investment ratio by the Ministry of Foreign Trade and
Economic Cooperation, the Company agreed to an interim loan of US $500,000
to Green Food Peregrine, with the conversion of that loan to registered
capital upon obtaining the required governmental approval. To fund this
equity increase, commencing on October 21, 1998, the Company initiated a
limited public offering of its Series C Convertible Preferred Stock,
pursuant to Rule 504 of Regulation D. On November 19, 1998, the Company
issued 83,334 shares of its Series C Convertible Preferred Stock, plus a
like number of Warrants, at a price of $3.00 per share (including the
Warrants) to Utah Resources International, Inc., a sophisticated investor,
resulting in proceeds of $250,000. Subsequently, on December 29, 1998,
this Rule 504 limited public offering was amended to offer and issue 50,000
shares of like Series C Convertible Preferred Stock, plus nine Warrants per
share, at a price of $3.00 per share (including Warrants), to Explorer Fund
Management, Inc., a sophisticated investor, resulting in proceeds of
$150,000. The aggregate proceeds received from this Rule 504 limited
public offering, which closed January 4, 1999, amounted to $400,000, with
$150,000 of that amount being received by the Company during the period
covered by this quarterly report.
Between January 1, 1999 and March 31, 1999, the Company issued 90,505
shares of its Common Stock to Utah Resources International, Inc., pursuant
to its conversion of 27,010 shares of the Company's Series C Convertible
Preferred Stock and the exercise of 30,000 Warrants. In addition, the
Company issued 150,000 shares of its Common Stock to Explorer Fund
Management, Inc., pursuant to its conversion of 50,000 shares of the
Company's Series C Convertible Preferred Stock.
Additional Working Capital Funding
- ----------------------------------
On March 9, 1999, the Company issued 53,500 shares of its Series D
Convertible Preferred Stock to three sophisticated corporate investors and
one finder. All investors receiving these shares are "accredited" investors.
The proceeds from this offer aggregated $500,000. These shares of Series D
Convertible Preferred Stock were issued in reliance upon the exemption from
registration provided in Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933, and the proceeds therefrom were used for general
working capital. The issue consisted of the Series D Convertible Preferred
Stock at $10.00 per share, with Warrants to: Austinvest Anstalt Balzers,
16,250 Series D/16,250 Warrants for $162,500; Esquire Trade & Finance
Inc.,16,250 Series D/16,250 Warrants for $162,500; Amro International, S.A.,
17,500 Series D/17,500 Warrants for $175,000. The offering provided for
second and third tranches of $250,000 each, the first which has occurred
in April, 1999, and the third which will occur upon the completion of
certain '33 Act registration events as spelled out in the Subscription
Agreement.
Series D Convertible Preferred Stock Consisting of 115,000 Authorized
Shares.
Dividends
- ---------
Each share of Series D Convertible preferred stock entitles the holder to
receive or accrue dividends at the rate of 6% simple interest per annum,
as a percentage of the Stated Value ($10.00 per share) of the Series D
Convertible Preferred Stock, which is payable in cash or common stock
quarterly at the Company's option. The payment of dividends shall be made
first to the Series D Convertible preferred stockholders before dividends
or other distributions are made on any common stock, Series A Preferred
Stock, Series B Preferred Stock or Series D Preferred Stock. The
availability of funds to the Company is dependent upon dividends or
distribution of profits from its subsidiaries, and may be subject to
regulatory control and approval by the appropriate government authorities
on either a regional or national level in the People's Republic of China.
Voting Rights
- -------------
Except as otherwise provided and as otherwise required by law, the Series D
Convertible Preferred Stock shall have no voting rights, except as provided
in the General Corporation Law of Delaware. So long as any shares of
Series D Convertible Preferred Stock are outstanding, however, the Company
shall not (a) alter or change adversely the powers, preferences or rights
given to the Series D Convertible Preferred Stock, (b) alter or amend this
Certificate of Designation, (c) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation or
otherwise, which class ranking is senior to the Series D Convertible
Preferred Stock, (d) amend its certificate of incorporation, bylaws or
other charter documents so as to affect adversely any rights of any
holders, (e) increase the authorized number of shares of Series D
Convertible Preferred Stock and (f) enter into any agreement with respect
to the foregoing, without the affirmative vote of the holders of a majority
of the shares of the Series D Convertible Preferred Stock then outstanding.
Conversion
- ----------
The holders of Series D Convertible Preferred stock shall be entitled to
convert such stock into the Company's common stock at any time subsequent
to the 91st day after issuance of such stock or upon the effectiveness of an
SB-2 registration statement for the resale of the common stock underlying
the Series D Convertible Preferred 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.
Adjustments to Conversion Price
- -------------------------------
If the Company, at any time while any shares of Series D Convertible
Preferred Stock are outstanding, shall (a) pay a stock dividend or
otherwise make a distribution or distributions on shares of its Junior
Securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any such adjustment shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
Liquidation Preference
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Upon any liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary, the holders of Series D Convertible Preferred
Stock shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Series D
Convertible Preferred Stock an amount equal to the Stated Value plus all
accrued but unpaid dividends per share, whether declared or not, before any
distribution or payment shall be made to the holders of any Junior
Securities, including the holders of common stock, Series A, Series B and
Series C Convertible Preferred Stock, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets
to be distributed to the holders of Series D Convertible Preferred Stock
shall be distributed among the holders of Series D Convertible Preferred
Stock ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full.
Redemption
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From and after 40 days after the Effective Date of the Registration
Statement for the resale of the common stock underlying the Series D
Convertible Preferred stock s the Company will have the option of redeeming
the Series D Preferred Stock by paying to the holder a sum of money equal
to the Closing Bid Price of the common stock on the date notice of
redemption is given to a holder, multiplied by the number of shares of
common stock that would be issued upon conversion of the designated amount
of Stated Value of Series D Preferred Stock being redeemed and the
dividends accrued thereon, at the Conversion Price that would be in effect
on the Redemption Date but in no event may the Redemption Amount be less
than 120% of the Stated Value of the Series D Preferred Stock being
redeemed plus the dollar amount of accrued dividends on the Series D
Preferred Stock being redeemed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Required by Item 601 of Regulation S-B.
(4) Series D Convertible Preferred Stock Designation
(27) Financial data schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 31, 1999.
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, thereunto duly authorized.
CHINA PEREGRINE FOOD CORPORATION
(Registrant)
Date: May 14, 1999
/s/ Roy G. Warren
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Roy G. Warren, President