PEREGRINE ENTERPRISES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
WITH REPORT OF INDEPENDENT AUDITORS
PEREGRINE ENTERPRISES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
TABLE OF CONTENTS
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Changes in Stockholder's Equity . . . . . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 6
REPORT OF INDEPENDENT AUDITORS
To the Stockholder of
Peregrine Enterprises, Inc.
We have audited the accompanying balance sheets of Peregrine Enterprises, Inc.
as of December 31, 2004 and 2003, and the related statements of operations,
changes in stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peregrine Enterprises, Inc. as
of December 31, 2004 and 2003, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Whitley Penn
Whitley Penn
Dallas, Texas
January 21, 2005
PEREGRINE ENTERPRISES, INC.
BALANCE SHEETS
DECEMBER 31,
2004 2003
---------- ----------
ASSETS
Current assets:
Cash $ 14,490 $ 14,490
Accounts receivable:
Trade 7,660 10,592
Other - 54,531
Inventories 1,740 1,740
Prepaid expenses 23,646 63,793
---------- ----------
Total current assets 47,536 145,146
Fixed assets, net 5,604 42,087
Other assets 77,035 77,035
---------- ----------
Total assets $ 130,175 $ 264,268
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdraft $ 206,380 $ 230,705
Accounts payable 130,774 212,111
Accrued liabilities 215,831 114,918
Line-of-credit 87,412 -
---------- ----------
Total current liabilities 640,397 557,734
Line-of-credit - 65,883
Deferred rent 228,769 94,820
Other non-current liabilities 6,149 9,503
---------- ----------
Total liabilities 875,315 727,940
Commitments and contingencies - -
Stockholder's equity:
Common stock, no par value, 200 shares
authorized and issued - -
Retained earnings 4,860 286,328
Treasury stock, 100 shares of common stock, at cost (750,000) (750,000)
---------- ----------
Total stockholder's equity (745,140) (463,672)
---------- ----------
Total liabilities and stockholder's equity $ 130,175 $ 264,268
========== ==========
See accompanying notes to financial statements.
2
PEREGRINE ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------
2004 2003
------------ --------------
Revenues:
Sales of beverages $ 229,032 $ 293,159
Service revenues 2,006,902 2,199,496
------------ --------------
2,235,934 2,492,655
Operating expenses:
Cost of goods sold 113,802 115,154
Salaries and wages 647,391 697,305
Other general and administrative:
Taxes and permits 233,786 244,981
Charge card fees 3,266 2,637
Rent 534,116 458,181
Legal and professional 75,589 9,000
Advertising and marketing 152,655 245,520
Depreciation 36,482 69,593
Other 657,769 630,652
------------ --------------
2,454,856 2,473,023
------------ --------------
Income (loss) from operations (218,922) 19,632
Other income (expense):
Interest income 11 30
Interest expense (9,889) (6,803)
Other 332 -
------------ --------------
Total other expense (9,546) (6,773)
------------ --------------
Net income (loss) $ (228,468) $ 12,859
============ ==============
See accompanying notes to financial statements.
3
PEREGRINE ENTERPRISES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003
COMMON STOCK TREASURY STOCK
----------------- --------------------- TOTAL
NUMBER RETAINED NUMBER STOCKHOLDER'S
OF SHARES AMOUNT EARNINGS OF SHARES AMOUNT EQUITY
--------- ------- ---------- --------- ---------- ---------------
Balance at December 31, 2002 200 $ - $ 275,963 100 $(750,000) $ (474,037)
Net income - - 12,859 - - 12,859
Stockholder distributions - - (2,494) - - (2,494)
--------- ------- ---------- --------- ---------- ---------------
Balance at December 31, 2003 200 - 286,328 100 (750,000) (463,672)
Net loss - - (228,468) - - (228,468)
Stockholder distributions - - (53,000) - - (53,000)
--------- ------- ---------- --------- ---------- ---------------
Balance at December 31, 2004 200 $ - $ 4,860 100 $(750,000) $ (745,140)
========= ======= ========== ========= ========== ===============
See accompanying notes to financial statements.
4
PEREGRINE ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
2004 2003
------------ --------------
OPERATING ACTIVITIES
Net income (loss) $ (228,468) $ 12,859
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 36,482 69,593
Changes in operating assets and liabilities:
Accounts receivable 57,463 (49,530)
Inventories - (740)
Prepaid expenses 40,147 (24,710)
Other assets - (9,000)
Bank overdraft (24,325) 70,431
Accounts payable (81,337) (124,695)
Accrued liabilities 100,913 10,070
Deferred rent 133,949 94,820
Other non-current liabilities (3,354) (26,562)
------------ --------------
Net cash provided by operating activities 31,470 22,536
FINANCING ACTIVITIES
Proceeds from line-of-credit 52,020 10,000
Payments on line-of-credit (30,490) (30,042)
Stockholder distributions (53,000) (2,494)
------------ --------------
Net cash used in financing activities (31,470) (22,536)
------------ --------------
Net decrease in cash and cash equivalents - -
Cash and cash equivalents at beginning of year 14,490 14,490
------------ --------------
Cash and cash equivalents at end of year $ 14,490 $ 14,490
============ ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 6,345 $ 6,632
============ ==============
See accompanying notes to financial statements.
5
PEREGRINE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
A. NATURE OF BUSINESS
Peregrine Enterprises, Inc. (the "Company") was incorporated in the state of New
York as a Subchapter S Corporation in 1992. The Company currently owns and
operates a nightclub that offers live adult entertainment. The nightclub and
corporate office is located in New York City, New York.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
BASIS OF ACCOUNTING
The accounts are maintained and the financial statements have been prepared
using the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts in the financial
statements and accompanying notes. Actual results could differ from these
estimates and assumptions.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At December 31, 2004 and
2003, the Company had no such investments. The Company maintains deposits
primarily in one financial institution, which may at times exceed amounts
covered by insurance provided by the U.S. Federal Deposit Insurance Corporation
("FDIC"). There were no uninsured deposits at December 31, 2004 and 2003. The
Company has not incurred any losses related to its cash on deposit with
financial institutions.
ACCOUNTS AND RECEIVABLE
Accounts receivable, trade is comprised of credit card charges, which are
generally converted to cash in two to five days after a purchase is made.
Accounts receivable, other is comprised of a worker's compensation refund
received in 2004 relating to the 2003 policy period. The Company recognizes
allowances for doubtful accounts when, based on management judgment,
circumstances indicate that accounts receivable will not be collected. There is
no allowance for doubtful accounts as of December 31, 2004 and 2003.
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PEREGRINE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVENTORIES
Inventories include non-alcoholic beverages, bar supplies, and Company
merchandise. Inventories are carried at the lower of average cost, which
approximates actual cost determined on a first-in, first-out ("FIFO") basis, or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets for financial
reporting purposes. Furniture, equipment, vehicles and leasehold improvements
have estimated useful lives between three and ten years. Expenditures for major
renewals and betterments that extend the useful lives are capitalized.
Expenditures for normal maintenance and repairs are expensed as incurred. The
cost of assets sold or abandoned and the related accumulated depreciation are
eliminated from the accounts and any gains or losses are charged or credited in
the accompanying statement of operations of the respective period.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of non-alcoholic beverages,
merchandise, cover charges and services at the point-of-sale upon receipt of
cash, check, or credit card charge.
ADVERTISING AND MARKETING
Advertising and marketing expenses are primarily composed of costs related to
public advertisements and are expensed as incurred.
INCOME TAXES
The Company is organized as an S Corporation for federal income tax purposes.
As a result, income or losses are taxable or deductible to the stockholder
rather than at the corporate level; accordingly, no provision has been made for
federal income taxes in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the reporting requirements of SFAS No. 107, Disclosures About
Fair Value of Financial Instruments, the Company calculates the fair value of
its assets and liabilities which qualify as financial instruments under this
statement and includes this additional information in the notes to financial
statements when the fair value is different than the carrying value of these
financial instruments. The estimated fair value of accounts receivable,
accounts payable and accrued liabilities approximate their carrying amounts due
to the relatively short maturity of these instruments. The carrying value of
short and long-term debt also approximates fair value since these instruments
bear market rates of interest. None of these instruments are held for trading
purposes.
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PEREGRINE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. FIXED ASSETS
Fixed assets consisted of the following:
DECEMBER 31,
2004 2003
---------- ----------
Leasehold improvements $ 637,571 $ 637,571
Furniture and equipment 368,342 368,342
Other 53,792 53,792
---------- ----------
Total property and equipment 1,059,705 1,059,705
Less accumulated depreciation 1,054,101 1,017,618
---------- ----------
Fixed assets, net $ 5,604 $ 42,087
========== ==========
D. LINE-OF-CREDIT
The Company has available a $100,000 unsecured line-of-credit with a bank.
Interest is payable monthly on the outstanding balance at a floating rate of
prime plus 1.5% (6.75% at December 31, 2004). This arrangement is subject to
renewal in June 2005. The amount outstanding under this agreement at December
31, 2004 was $87,412.
E. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases a building under an operating lease, of which rent expense
was approximately $534,000 and $458,000, net of subleasing income of $24,000 and
$24,000, for the years ended December 31, 2004 and 2003, respectively. The
sublease agreement has expired; however, the tenant is paying $2,000 to sublease
space on a month-to-month basis.
The Company's building lease contains escalating lease payments over the lease
term and, as a result, the Company is recording rent expense on a straight-line
basis over the term of the lease. The Company has approximately $229,000 and
$95,000 of deferred rent at December 31, 2004 and 2003, respectively.
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PEREGRINE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. COMMITMENTS AND CONTINGENCIES - CONTINUED
Leases - continued
Future minimum annual lease obligations as of December 31, 2004, excluding
future sublease income, approximates the following:
2005 $ 435,000
2006 448,000
2007 461,000
2008 475,000
2009 490,000
Thereafter 8,117,000
-----------
Total future minimum lease obligations $10,426,000
===========
F. SUBSEQUENT EVENTS
Effective January 19, 2005, the Company was acquired by Rick's Cabaret
International, Inc., which operates live adult entertainment nightclubs. Rick's
Cabaret International, Inc. is a publicly traded company.
9