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 June 30, 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
06/30/99 Common Stock 8,623,533
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
June 30, 1999 (unaudited) and December 31, 1998
Condensed consolidated statements of operations F-3
(unaudited) for the three and six months ended
June 30, 1999 and 1998
Condensed consolidated statements of cash flows F-4
(unaudited) for the six months ended
June 30, 1999 and 1998
Notes to condensed consolidated financial
statements (unaudited) F-6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes In Securities and Use of Proceeds 13
Item 6. Exhibits and reports on Form 8-K 14
SIGNATURES 14
EXHIBITS 15
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
China Peregrine Food Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 748,590 $ 485,671
Accounts receivable, less allowances for doubtful
accounts of $648,504 and $652,830 509,717 602,572
Subscription receivable 235,000 -
Other receivable 73,963 260,445
Inventory 868,238 1,099,733
VAT refund receivable 57,069 -
Prepaid expenses 84,877 115,359
Deposits 19,727 10,000
-----------------------------
Total current assets 2,597,181 2,573,780
Property, plant and equipment, net 5,806,767 5,572,588
Construction in progress 55,735 94,798
Goodwill 293,096 261,122
Licensing agreement, net - 257,143
Trademark and other deferred expenses 119,827 58,200
Proprietary technology, net 52,242 48,061
Start up costs, net 248,732 -
Total assets $9,173,580 $8,865,692
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
China Peregrine Food Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
(Audited) (Unaudited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan in Meilijian $ 1,425,345 $ 1,425,293
Bank loan in GFP 1,147,523 1,147,483
Current portion of obligation - licensing agreement - 85,000
Current portion of note payable 58,104 60,691
Accounts payable 868,760 947,198
Accrued liabilities 1,178,563 1,234,688
Accrued payroll 39,162 26,267
Advances from customers 241,354 321,065
Subscriptions in advance - 67,000
Dividends payable 200,667 279,388
------------------------------
Total current liabilities 5,159,478 5,594,073
Note payable, less current portion 192,741 164,432
Long-term related party loan 677,583 709,889
Obligation - licensing agreement, less current portion - 170,000
------------------------------
Total liabilities 6,029,802 6,638,394
Minority interest 1,128,787 796,169
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 , 83,334 shares and
55,396 shares issued and outstanding at December 31, 1998
and June 30, 1999 250,000 166,186
Series D convertible, 6% cumulative and redeemable preferred
stock, stated value $10.00 per share, 80,250 shares issued and
outstanding at June 30, 1999 - 762,500
Common stock; par value $0.001 per share, 20,000,000 shares
authorized, 7,717,957 and 8,623,533 shares issued and
outstanding at December 31, 1998 and June 30, 1999 7,718 8,623
Additional paid-in capital 7,427,082 8,998,573
Stock subscribed 235,000 -
Accumulated deficit (7,031,046) (9,625,355)
Translation adjustments (134,263) (139,898)
------------------------------
Total shareholders' equity 2,014,991 1,431,129
------------------------------
Total liabilities and shareholders' equity $ 9,173,580 8,865,692
==============================
</TABLE>
See accompanying to consolidated financial statements.
China Peregrine Food Corporation
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1999 1998 1999
--------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 242,595 $ 1,682,397 $ 402,993 $ 2,928,810
Cost of goods sold 260,720 1,517,623 459,611 2,631,247
--------------------------------------------------------
Gross margin (loss) (18,125) 164,774 (56,618) 297,563
Selling expense 83,999 237,391 157,726 429,871
General and administrative expense 490,927 882,353 989,095 1,648,084
--------------------------------------------------------
Loss from operations (593,051) 954,970 (1,203,439) (1,780,392)
Other expense:
Interest expense, net 76,222 54,866 115,079 141,166
Other, net (51,577) 23,987 43,017 25,405
--------------------------------------------------------
Loss before income taxes (617,696) (1,033,823) (1,361,535) (1,946,963)
Income taxes - - - -
--------------------------------------------------------
Loss before minority interest (617,696) (1,033,823) (1,361,535) (1,946,963)
Less: losses in subsidiaries attributed
to minority interest (118,223) (121,290) (209,581) (332,618)
--------------------------------------------------------
Loss before cumulative effect of
change in accounting principle (499,473) (912,533) (1,151,954) (1,614,345)
Cumulative effect of change in
accounting principle - write-off of
start up costs - - - 259,757
--------------------------------------------------------
Net loss (499,473) (912,533) (1,151,954) (1,874,102)
Dividends accrued for Series B
preferred stock (28,350) (28,350) (56,700) (56,700)
Dividends accrued for Series C
preferred stock - (3,559) - (9,003)
Dividends accrued for Series D
preferred stock - (652,453) - (654,504)
Net loss applicable to common
shareholders (527,823) (1,596,895) $(1,208,654) (2,594,309)
========================================================
Loss per share (0.09) (0.19) $ (0.22) (0.32)
========================================================
Weighted average number of common
shares outstanding 5,794,799 8,408,301 5,591,678 8,206,039
========================================================
Comprehensive loss and its
components consist of the following:
Net Loss $ 499,473 $ 912,533 $ 1,151,954 $ 1,874,102
Foreign currency translation
adjustment 1,598 4,268 7,334 5,635
--------------------------------------------------------
Comprehensive loss $ 501,071 $ 916,801 $ 1,159,288 $ 1,879,737
</TABLE>
See accompanying notes to consolidated financial statements.
China Peregrine Food Corporation
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, June 30,
1998 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,151,954) $(1,874,102)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 234,284 666,341
Provision for bad debts 7,584 -
Issuance of stock in exchange for services 66,862 60,499
Compensation cost for stock option issue - 48,563
Adjustment for prior period net losses
attributed to 2.4% minority interest
acquired during 1998 94,533 -
Minority interest (209,581) (332,618)
Increase (decrease) from changes in:
Accounts receivable (8,387) (97,180)
Other receivable (89,195) (186,474)
Inventory 22,275 (231,495)
VAT refund receivable 30,550 -
Prepaids and other assets 47,562 26,587
Deposits - 9,727
Accounts payable (39,019) 103,554
Advances from customers (10,379) 79,711
Accrued liabilities 404,441 85,111
---------------------------
Net cash used in operating activities (600,424) (1,641,776)
---------------------------
Cash flows from investing activities
Purchase of equipment and machinery (5,690) (42,792)
Additions of construction in progress - (39,063)
---------------------------
Net cash used in investing activities (5,690) (81,855)
---------------------------
Cash flows from financing activities
Increase in related party loan - 32,306
Repayment of Bank loan (3,731) -
Repayment of note payable - (25,763)
Repayment of loan obligation from licensing agreement - (45,000)
Proceeds of Series C Preferred stock - 135,000
Proceeds of Series D Preferred stock - 710,000
Proceeds from stock warrants exercised - 83,334
Proceeds of Rule 506, Regulation D offering 1,387,500 -
Proceeds of Section 4(2) private offering - 572,200
---------------------------
Net cash provided by financing activities 1,383,769 1,462,077
---------------------------
Effect of exchange rate changes on cash (33,268) (1,365)
---------------------------
Net increase (decrease) in cash and cash equivalents 744,387 (262,919)
Cash and cash equivalents, beginning of period 435,630 748,590
---------------------------
Cash and cash equivalents, end of period $ 1,180,017 $ 485,671
===========================
Cash paid during the period:
Interest $ 38,434 $ 161,023
Income taxes - -
===========================
</TABLE>
Supplemental disclosure of non-cash activities:
An institutional holder of Preferred Stock Series C converted 27,938 shares
into 93,959 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)
During March 1999 the Company issued 3,500 shares of Preferred Stock Series D
at $10 per share to pay the relevant finder's fee for the first tranche of
50,000 shares of Preferred Stock Series D.
During April 1999, the Company issued 1,750 shares of Preferred Stock
Series D at $10 per share to pay the relevant finder's fee for the second
tranche of 25,000 shares of Preferred Stock Series D.
During June 1999, the Company issued 1,999 shares of common stock at $1 per
share in exchange for $2,000 of consulting fee and 4,084 shares of common
stock at approximately $1.47 in exchange for $6,000 of consulting fee with
the same consulting service provider.
During June 1999, the Company signed stock option agreements with five non-
employee people, who had provided bookkeeping, research and organization
services to the Company, for a total of 55,000 restrictive shares of common
stock pursuant to Section 4(2) of the 1933 Act. These option agreements
contain an exercise price of $1 per share and expire in five years.
Accordingly, the Company recognized non-employee compensation cost of
$48,563.
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 June 30, 1999. In Hangzhou
Meilijan, the Company accounted for 52% of equity interest and a Chinese
joint venture partner accounted for the remaining equity interest as of June
30, 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 and six-month period ended
June 30, 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
Notes to Consolidated Financial Statement
(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 March 31, 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 through issuing 415,000
share of common stock. Among $415,000 received, $105,000 were paid back to
investors per their request for cancellation in April, 1999. Accordingly,
105,000 shares of common stock were cancelled.
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
finder's fee to a financial institution. On March 9, 1999, the Company
issued 50,000 shares of the Series D Preferred Stock. The net proceeds of
these 50,000 shares of Preferred Stock Series D was $470,000, net of $15,000
placement fee and $15,000 of legal expense. In line with the conversion
feature embedded in Series D Preferred Stock, the Company recognized a total
of $535,000 of deemed dividends for the period from the date of issuance to
the first date that conversion could occur.
China Peregrine Food Corporation
Notes to Consolidated Financial Statement
(Unaudited)
In April 1999, the Company issued 25,000 shares of Preferred Stock Series D
at $10 per share. The net proceeds of this issuance was $240,000, net of
$7,500 of placement fee and $2,500 legal expense. The Company also issued
1,750 shares of Series D Preferred Stock in exchange for a finder's fee at
$10 per share. In line with the conversion feature embedded in Series D
Preferred Stock, the Company recognized $106,485 of deemed dividends for the
second tranche of 26,750 shares of Series D in the second quarter.
During April, the Company issued 53,334 shares of common stock at $1 per
share as the result of exercising 53,334 warrants related to the previous
83,334 shares of Series C Preferred Stock.
During May and June, the Company conducted a private sale of its common stock
and received total proceeds of $262,200 and issued 262,200 shares of common
stock.
During June 1999, the Company issued 1,999 shares of its common stock at
approximately $1 per share in exchange of $2,000 consulting fee and 4,084
shares of common stock at approximate $1.47 per share in exchange for $6,000
of consulting fee with the same consulting service provider.
During June 1999, the Company signed stock option agreements with five non-
employee people, who had provided bookkeeping, research and organization
services to the Company, for a total of 55,000 restrictive shares of common
stock pursuant to Section 4(2) of the 1933 Act. These option agreements
contain an exercise price of $1 per share and expire in five years.
Accordingly, the Company recognized non-employee compensation cost of
$48,563.
Note 5 - Subsequent Events
During July and August , 1999, the Company conducted a private sale of its
Preferred Stock Series E and issued 100,000 shares of Series E to seven
accredited and sophisticated investors at $2.50 per share. The net proceeds
of this issuance was $200,000, net of $50,000 of finder's fee and legal
expense. In line with the conversion feature embedded in Series E Preferred
Stock, the Company would recognize $48,708 of deemed dividend.
The Series E Preferred Stock has the following features: The holders of
Series E Convertible Preferred stock shall be entitled to convert such stock
into the Company's common stock at any time subsequent to the issuance of
such stock, subject to a one year "lockup" agreement entered into by the
holders of such stock. The number of shares of common stock issuable upon
conversion of each share of Series E 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 greater of: (i) $1.25 per share of
common stock or (ii) 80% of the average of the closing bid prices for the 5
trading days immediately preceding the conversion of the respective shares of
Series E Preferred Stock, but in no event shall the conversion price be
greater than $2.50 per share of common stock.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS ON FINANCIAL CONDITION
AND OPERATION RESULTS
Period from January 1, 1999 to June 30, 1999
- --------------------------------------------
RESULTS OF OPERATIONS
At June 30, 1999, the Company had an accumulated deficit of $9,625,355. The
Company had cash on hand of $485,671 and reported total shareholders' equity
of $1,431,129.
The Company had net sales of $2,928,810 and a gross profit of $297,563. In
addition to the $2,631,247 of cost of sales, the Company had selling expenses
of $429,871 and general and administrative expenses of $1,648,084. After
interest expenses of $141,166 and other net expenses of $25,405 and the
cumulative effect of a change in accounting principle of $259,757, the
Company had a net loss of $1,874,102, resulting in a loss per share of $0.32.
As the same as in the prior period, general and administrative expenses for
the six months ended June 30, 1999 have been and are continuing to be a
significant percentage of revenue at this stage of the Company's existence.
Six Month Period Ended June 30, 1999
Compared to Six Month Period Ended June 30, 1998
- ------------------------------------------------
Revenues increased almost 627% to $2,928,810 in 1999 from $402,993 in 1998.
The main reason for this is the inclusion of the revenues from Meilijian for
the six months ended June 30, 1999.
Cost of goods sold increased approximately 472% to $2,631,247 in 1999 from
$459,611 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 90% in 1999 from 114%
in 1998. Consequently, the gross profit ratio increased to 10% in 1999 from
negative 14% 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 173% to $429,871 in 1999 from
$157,726 in 1998. This was also due to the inclusion of the operating results
of Meilijian for the six months ended June 30, 1999.
General and administrative expenses increased approximately 67% to $1,648,084
in 1999 from $989,095 in 1998. The US corporate office's general and
administrative expenses increased approximately 103% to $1,183,039 in 1999
from $582,946 in 1998. Among the $1,183,039 of U.S. corporate expense
approximately $125,000 related to people working in China. The other major
items of approximately $563,000 resulting in the increase in U.S. corporate
expenses, were professional fees and travel expenses related to raising
capital and China operations. The general and administrative expenses
incurred in the China operations, increased approximately 15% to $465,045 in
1999 from $406,149 in 1998. This was also due to the inclusion of the
operating results of Meilijian for the six months ended June 30, 1999.
Overall, as a percentage of total revenue, the general and administrative
expenses decreased to 56% in 1999 from 245% in 1998.
Interest expense increased approximately 23% to $141,166 in 1999 from
$115,079 in 1998. The increase was due to the inclusion of the operating
results of Meilijian for the six months ended June 30, 1999.
Consequently, the net loss applicable to the common shares increased
approximately 115% to $2,594,309 in 1999 from $1,208,654 in 1998. The net
loss to the common shares as a percentage of revenue decreased to 89% in 1999
from 300% in 1998.
The Company reported a loss per share of $0.32 in 1999 and $0.22 in 1998.
The increase in the loss per share was due mainly to the recognized deemed
dividends associated with the issuance of convertible Preferred Stock
Series D. The total deemed dividends recognized during the six months period
was approximately $641,000. As of June 30, 1998 there were 6,021,272 shares
of common stock outstanding and as of June 30, 1999 there were 8,623,533
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 8,206,039.
Three Month Period Ended June 30, 1999
Compared to Three Month Period Ended June 30, 1998
- --------------------------------------------------
Revenues increased almost 594% to $1,682,397 in 1999 from $242,595 in 1998.
The main reason for this is the inclusion of the revenues from Meilijian for
the three months ended June 30, 1999.
Cost of goods sold increased approximately 482% to $1,517,623 in 1999 from
$260,720 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 90% in 1999 from 107%
in 1998. Consequently, the gross profit ratio increased to 10% in 1999 from
negative 7% 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 182% to $237,391 in 1999 from
$83,999 in 1998. This was also due to the inclusion of the operating results
of Meilijian for the three months ended June 30, 1999.
General and administrative expenses increased approximately 80% to $882,353
in 1999 from $490,927 in 1998. The U.S. corporate office's general and
administrative expenses increased approximately 191% to $670,387 in 1999 from
$230,633 in 1998. Among the $670,387 of U.S. Corporate expenses,
approximately $62,500 of expenses were related to people working in China.
The other major items of approximately $281,500 resulting in the increase in
U.S. Corporate expenses, were professional fees and travel expenses related
to raising capital and China operations. The general and administrative
expenses incurred in the China operations, decreased approximately 19% to
$211,966 in 1999 from $260,294 in 1998. This was also due to the inclusion
of the operating results of Meilijian for the three months ended June 30,
1999. Overall, as a percentage of total revenue, the general and
administrative expenses decreased to 52% in 1999 from 202% in 1998.
Interest expense decreased approximately 28% to $54,866 in 1999 from $76,222
in 1998.
Consequently, the net loss applicable to the common shares increased
approximately 202% to $1,596,895 in 1999 from $527,823 in 1998. The net loss
to the common shares as a percentage of revenue decreased to 95% in 1999 from
218% in 1998.
The Company reported a loss per share of $0.19 in 1999 and $0.09 in 1998.
The increase in the loss per share was due mainly to the recognized deemed
dividend associated with the issuance of convertible Preferred Stock
Series D. The total deemed dividends recognized during the three months
period was approximately $641,000. Due to the timing of issuance of new
shares, the weighted average number of common shares outstanding in 1999 was
only 8,408,301.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company reported that net cash used in operating
activities was $600,424 and net cash provided by financing activities was
$1,383,769 with a negative $33,268 effect of exchange rate changes on cash.
As of June 30, 1999, the Company reported that net cash used in operating
activities was $1,641,776, net cash used in investing activities was $81,855
and net cash provided by financing activities was $1,462,077 with a negative
$1,365 effect of exchange rate changes on cash.
Net cash used in operating activities increased 173% to $1,641,776 in the
first six months of 1999 from $600,424 used in operating activities in the
same period of 1998. The cash used in operating activities increased mainly
due to net losses from operating activities of $1,874,102.
Net cash used in investing activities increased to $81,855 in the first six
months of 1999 from $5,690 in the same period of 1998.
Net cash provided by financing activities increased to $1,462,077 in the
first six months of 1999 from $1,383,769 in the same period of 1998. The
major reason for this increase was due to many fund raising exercises
conducted in the first six months of 1999.
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, Peoples' 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 third 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 April 1, 1999 and June 30, 1999, the Company issued 548,283 shares of
its common stock, at $1.00 per share, to accredited and/or sophisticated
investors. During this period, 105,000 shares of these issued shared were
canceled as being issued in error. Of the issued shares, 6,083 shares were
issued to The Omega Group for dairy consulting services rendered. 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 January 2, 1999, 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.
Between April 1, 1999 and June 30, 1999, the Company issued 73,334 shares of
its common stock to Utah Resources International, Inc., pursuant to its
conversion of 7,672 shares of the Company's Series C Convertible Preferred
Stock and the exercise of 53,334 warrants.
Grant of Options
- ----------------
During June 1999, the Company issued a total of five stock options agreements
with certain non-shareholders and non-employees, who had provided bookkeeping,
research and organizational services to us, for 55,000 restricted shares
pursuant to Section 4(2) of the Act. These options contain an exercise price
of $1.00 per share and expire in five (5) years.
Subsequent Events
- -----------------
Capital Expenditure and Working Capital Funding
- -----------------------------------------------
In June 21, 1999, the Company commenced its offering of 1,000,000 shares of
Series E Convertible Preferred Stock, pursuant to Regulation D, Rule 506.
This offering, which is limited to "accredited investors," provides for a
minimum of 10 Units and a maximum of 100 Units, at a purchase price of $25,000
per Unit. Each Unit consists of (i) 10,000 shares of the Company's Series E
Preferred Stock, $.001 par value per share and $2.50 per share stated value
and (ii) a warrant to purchase 5,000 shares of the Company's common stock,
$.001 par value per share. The Preferred Stock is non-voting, convertible into
shares of common stock, and bears a cumulative, non-compounded dividend at the
rate of six percent (6%) of the stated value per annum, payable upon
conversion of the Preferred Stock in cash or, at the Company's option, in
shares of common stock. The Warrants are exercisable at a price of $3.00 per
share at any time for a period of two years from the date of issuance. This
funding is earmarked for the purchase of new dairy equipment, expenses in the
expansion and development of product base, expenses associated with a new
marketing campaign, and general working capital. On July 23, 1999, 100,000
shares of the Series E Convertible Preferred Stock were issued.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Required by Item 601 of Regulation S-B.
(4) Series E 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 June 30, 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: August 13, 1999
/s/Roy G. Warren
-----------------------------------
Roy G. Warren, President
EXHIBITS
Exhibit 4.2
CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE
RIGHTS OF SERIES E 6% CUMULATIVE CONVERTIBLE
PREFERRED STOCK, $.001 PAR VALUE PER SHARE
It is hereby certified that:
I. The name of the corporation is China Peregrine Food Corporation
(the "Corporation"), a Delaware corporation.
II. Set forth hereinafter is a statement of the voting powers,
preferences, limitations, restrictions, and relative rights of shares of
Series E 6% Cumulative Convertible Preferred Stock hereinafter designated
as contained in a resolution of the Board of Directors of the Corporation
pursuant to a provision of the Articles of Incorporation of the Corporation
permitting the issuance of said Series E 6% Cumulative Convertible
Preferred Stock by resolution of the Board of Directors:
Series E 6% Cumulative Convertible Preferred Stock, $.001 par value.
1. Designation: Number of Shares. The designation of said series
of Preferred Stock shall be Series E 6% Cumulative Convertible Preferred
Stock (the "Series E Preferred Stock"). The number of shares of Series E
Preferred Stock shall be 1,500,000. Each share of Series E Preferred Stock
shall have a stated value equal to $2.50 (as adjusted for any stock
dividends, combinations or splits with respect to such shares) (the "Stated
Value"), and a par value of $0.001 per Series E Preferred Share.
2. Dividends.
(a) The Holders of outstanding shares of Series E Preferred
Stock shall be entitled to receive dividends in cash out of any funds
of the Corporation legally available at the time for declaration of
dividends before any dividend or other distribution paid or declared
and set apart for payment on any shares of Common Stock ("Junior
Stock"), and in pari passu with any dividend or other distribution
paid or declared and set apart for payment on any shares of any
Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock ("Parity Stock"), but subordinate to the payment or
declaration of any dividends or other distributions to the holders of
Series D Preferred Stock, at the rate of 6% simple interest per annum
on the Stated Value per share payable at the conversion of the Series
E Preferred Stock to the Common Stock of the Corporation (the
"Dividend Payment Date"), as provided herein; provided however that,
at the option of the Corporation, dividend payments may be made in
fully paid and non assessable shares of Common Stock of the
Corporation at a rate determined by the Conversion Price as set forth
in and pursuant to the provisions of paragraph 4(b) herein, and the
issuance of such additional shares shall constitute full payment of
such dividends.
(b) The dividends on the Series E Preferred Stock at the
rates provided above shall be cumulative whether or not earned so
that if at any time full cumulative dividends at the rate aforesaid
on all shares of the Series E Preferred Stock then outstanding from
the date from and after which dividends thereon are cumulative until
paid. If, on the Dividend Payment Date, the dividends are not paid
in full in cash or in Common Stock, the amount of the deficiency
shall be paid or declared and set apart for payment (but without
interest thereon) before any sum shall be set apart for or applied by
the Corporation or a subsidiary of the Corporation to the purchase,
redemption or other acquisition of the Series E Preferred Stock or
any shares of Parity Stock and before any dividend or other
distribution shall be paid or declared and set apart for payment on
any Junior Stock and before any sum shall be set aside for or applied
to the purchase, redemption or other acquisition of Junior Stock, but
subordinate to the rights of the holders of the Series D Preferred
Stock.
(c) Dividends on all shares of the Series E Preferred Stock
shall begin to accrue and be cumulative from and after the date of
issuance thereof.
3. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the Holders of the
Series E Preferred Stock shall be entitled to receive before any
payment or distribution shall be made on the Junior Stock and in pari
passu with the Parity Stock, but subordinate to the Series D
Preferred Stock, out of the assets of the Corporation available for
distribution to stockholders, the Stated Value per share of Series E
Preferred Stock and all accrued and unpaid dividends to and including
the date of payment thereof. Upon the payment in full of all amounts
due to Holders of the Series E Preferred Stock the Holders of the
Common Stock of the Corporation and any other class of Junior Stock
shall receive all remaining assets of the Corporation legally
available for distribution. If the assets of the Corporation
available for distribution to the Holders of the Series E Preferred
Stock shall be insufficient to permit payment in full of the amounts
payable as aforesaid to the Holders of Series E Preferred Stock upon
such liquidation, dissolution or winding-up, whether voluntary or
involuntary, then all such assets of the Corporation shall be
distributed to the exclusion of the Holders of shares of Junior Stock
ratably among the Holders of the Series E Preferred Stock, subject
always to the rights of the holders of the series D Preferred Stock.
(b) Neither the purchase nor the redemption by the
Corporation of shares of any class of stock nor the merger or
consolidation of the Corporation with or into any other corporation
or corporations nor the sale or transfer by the Corporation of all or
any part of its assets shall be deemed to be a liquidation,
dissolution or winding-up of the Corporation for the purposes of this
paragraph 3.
4. Conversion into Common Stock. Shares of Series E Preferred
Stock shall have the following conversion rights and obligations:
(a) Subject to the further provisions of this paragraph 4
each Holder of shares of Series E Preferred Stock shall have the
right at any time commencing on the issuance thereof to convert such
shares into fully paid and non-assessable shares of Common Stock of
the Corporation (as defined in paragraph 4(i) below) determined in
accordance with the Conversion Price provided in paragraph 4(b) below
(the "Conversion Price"); provided, that the aggregate Stated Value
to be converted shall be at least $10,000 (unless if at the time of
such conversion the aggregate Stated Value of all shares of Series E
Preferred Stock registered to the Holder is less than $10,000, then
the whole amount may be converted). All dividends paid in Common
Stock may be converted at the election of the Holder simultaneously
with the conversion of principal amount of Stated Value of Series E
Preferred Stock being converted.
(b) The number of shares of Common Stock issuable upon
conversion of each share of Series E 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
greater of: (i) $1.25 per Common Stock share; or (ii) 80% of the
average Closing Bid Prices for the five (5) trading days immediately
preceding the date on which the Corporation receives a conversion
notice for the respective shares of Series E Preferred Stock (the
"Lookback Period"), provided, that the Conversion Price will in no
event be greater than $2.50 per Common Stock share. The Closing Bid
Price shall mean the closing bid price of the Corporation's Common
Stock as reported by the NASD OTC Bulletin Board or the principal
exchange or market where traded.
(c) The Holder of any certificate for shares of Series E
Preferred Stock desiring to convert any of such shares may give
notice of its decision to convert the shares into common stock by
delivering or telecopying an executed and completed notice of
conversion to the Corporation at its corporate offices and delivering
within three business days thereafter, the original notice of
conversion and the certificate for the Preferred Stock properly
endorsed for or accompanied by duly executed instruments of transfer
(and such other transfer papers as said Transfer Agent may reasonably
require) to the Corporation or the Corporation's Transfer Agent. Each
date on which a notice of conversion is delivered or telecopied to
the Corporation in accordance with the provisions hereof shall be
deemed a Conversion Date. A form of Notice of Conversion that may be
employed by a Holder is annexed hereto as Exhibit A. The Corporation
will transmit the certificates representing the shares of common
stock issuable upon conversion of any Series E Preferred Stock
(together with the Series E Preferred Stock representing the shares
not converted) to the Holder via express courier, by electronic
transfer or otherwise, within five (5) business days after receipt by
the Corporation of the original notice of conversion and the Series E
Preferred Stock representing the shares to be converted ("Delivery
Date"). The Holder of the shares so surrendered for conversion shall
be entitled to receive on or before the Delivery Date a certificate
or certificates which shall be expressed to be fully paid and non-
assessable for the number of shares of Common Stock to which such
Holder shall be entitled upon such conversion registered in the name
of such Holder. The Corporation is obligated to deliver to the
Holder simultaneously with the aforedescribed Common Stock, at the
election of the Holder, additional Common Stock representing the
conversion at the Conversion Price, of dividends accrued on the
Series E Preferred Stock being converted. In the case of any Series
E Preferred Stock which is converted in part only the Holder of
shares of Series E Preferred Stock shall upon delivery of the
certificate or certificates representing Common Stock also receive a
new share certificate representing the unconverted portion of the
shares of Series E Preferred Stock. Nothing herein shall be
construed to give any Holder of shares of Series E Preferred Stock
surrendering the same for conversion the right to receive any
additional shares of Common Stock or other property which results
from an adjustment in conversion rights under the provisions of
paragraph (d) or (e) of this paragraph 4 until Holders of Common
Stock are entitled to receive the shares or other property giving
rise to the adjustment.
In the case of the exercise of the conversion rights set forth
in paragraph 4(a) the conversion privilege shall be deemed to have
been exercised and the shares of Common Stock issuable upon such
conversion shall be deemed to have been issued upon the date of
receipt by the Corporation of the Notice of Conversion. The person
or entity entitled to receive Common Stock issuable upon such
conversion shall, on the date such conversion privilege is deemed to
have been exercised and thereafter, be treated for all purposes as
the record Holder of such Common Stock and shall on the same date
cease to be treated for any purpose as the record Holder of such
shares of Series E Preferred Stock so converted.
Upon the conversion of any shares of Series E Preferred Stock
no adjustment or payment shall be made with respect to such
converted shares on account of any dividend on the Common Stock,
except that the Holder of such converted shares shall be entitled to
be paid any dividends declared on shares of Common Stock after
conversion thereof.
The Corporation shall not be required, in connection with any
conversion of Series E Preferred Stock, and payment of dividends on
Series E Preferred Stock to issue a fraction of a share of its Series
E Preferred Stock and shall instead deliver a stock certificate
representing the next whole number.
(d) The Conversion Price shall be subject to adjustment from
time to time as follows:
(i) In case the Corporation shall at any time (A)
declare any dividend or distribution on its Common Stock or
other securities of the Corporation other than the Series E
Preferred Stock, (B) split or subdivide the outstanding Common
Stock, (C) combine the outstanding Common Stock into a smaller
number of shares, or (D) issue by reclassification of its
Common Stock any shares or other securities of the Corporation,
then in each such event the Conversion Price shall be adjusted
proportionately so that the Holders of Series E Preferred Stock
shall be entitled to receive the kind and number of shares or
other securities of the Corporation which such Holders would
have owned or have been entitled to receive after the happening
of any of the events described above had such shares of Series
E Preferred Stock been converted immediately prior to the
happening of such event (or any record date with respect
thereto). Such adjustment shall be made whenever any of the
events listed above shall occur. An adjustment made to the
Conversion Price pursuant to this paragraph 4(d)(i) shall
become effective immediately after the effective date of the
event retroactive to the record date, if any, for the event.
(e) (i) In case of any merger of the Corporation with
or into any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and
which does not result in any reclassification, conversion, or
change of the outstanding shares of Common Stock) then unless
the right to convert shares of Series E Preferred Stock shall
have terminated, as part of such merger lawful provision shall
be made so that Holders of Series E Preferred Stock shall
thereafter have the right to convert each share of Series E
Preferred Stock into the kind and amount of shares of stock
and/or other securities or property receivable upon such merger
by a Holder of the number of shares of Common Stock into which
such shares of Series E Preferred Stock might have been
converted immediately prior to such consolidation or merger.
Such provision shall also provide for adjustments which shall
be as nearly equivalent as may be practicable to the
adjustments provided for in paragraph (d) of this paragraph 4.
The foregoing provisions of this paragraph 4(e) shall similarly
apply to successive mergers.
(ii) In case of any sale or conveyance to another person
or entity of the property of the Corporation as an entirety, or
substantially as an entirety, in connection with which shares
or other securities or cash or other property shall be
issuable, distributable, payable, or deliverable for
outstanding shares of Common Stock, then, unless the right to
convert such shares shall have terminated, lawful provision
shall be made so that the Holders of Series E Preferred Stock
shall thereafter have the right to convert each share of the
Series E Preferred Stock into the kind and amount of shares of
stock or other securities or property that shall be issuable,
distributable, payable, or deliverable upon such sale or
conveyance with respect to each share of Common Stock
immediately prior to such conveyance.
(f) Whenever the number of shares to be issued upon
conversion of the Series E Preferred Stock is required to be adjusted
as provided in this paragraph 4, the Corporation shall forthwith
compute the adjusted number of shares to be so issued and prepare a
certificate setting forth such adjusted conversion amount and the
facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the Transfer Agent for the Series E Preferred
Stock and the Common Stock; and the Corporation shall mail to each
Holder of record of Series E Preferred Stock notice of such adjusted
conversion price.
(g) In case at any time the Corporation shall propose:
(i) to pay any dividend or distribution payable in
shares upon its Common Stock or make any distribution (other
than cash dividends) to the Holders of its Common Stock; or
(ii) to offer for subscription to the Holders of its
Common Stock any additional shares of any class or any other
rights; or
(iii) any capital reorganization or reclassification of
its shares or the merger of the Corporation with another
corporation (other than a merger in which the Corporation is
the surviving or continuing corporation and which does not
result in any reclassification, conversion, or change of the
outstanding shares of Common Stock); or
(iv) the voluntary dissolution, liquidation or winding-
up of the Corporation;
then, and in any one or more of said cases, the Corporation shall
cause at least fifteen (15) days prior notice of the date on which
(A) the books of the Corporation shall close or a record be taken for
such stock dividend, distribution, or subscription rights, or (B)
such capital reorganization, reclassification, merger, dissolution,
liquidation or winding-up shall take place, as the case may be, to be
mailed to the Transfer Agent for the Series E Preferred Stock and for
the Common Stock and to the Holders of record of the Series E
Preferred Stock.
(h) So long as any shares of Series E Preferred Stock shall
remain outstanding and the Holders thereof shall have the right to
convert the same in accordance with provisions of this paragraph 4
the Corporation shall at all times reserve from the authorized and
unissued shares of its Common Stock a sufficient number of shares to
provide for such conversions.
(i) The term Common Stock as used in this paragraph 4 shall
mean the $.001 par value Common Stock of the Corporation as such
stock is constituted at the date of issuance thereof or as it may
from time to time be changed or shares of stock of any class of other
securities and/or property into which the shares of Series E
Preferred Stock shall at any time become convertible pursuant to the
provisions of this paragraph 4.
(j) The Corporation shall pay the amount of any and all issue
taxes (but not income taxes) which may be imposed in respect of any
issue or delivery of stock upon the conversion of any shares of
Series E Preferred Stock, but all transfer taxes and income taxes
that may be payable in respect of any change of ownership of Series E
Preferred Stock or any rights represented thereby or of stock
receivable upon conversion thereof shall be paid by the person or
persons surrendering such stock for conversion.
(k) In the event a Holder shall elect to convert any shares
of Series E Preferred Stock as provided herein, the Corporation
cannot refuse conversion based on any claim that such Holder or any
one associated or affiliated with such Holder has been engaged in any
violation of law, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of said shares
of Series E Preferred Stock shall have been issued and the
Corporation posts a surety bond for the benefit of such Holder in the
amount of 126% of the Stated Value of the Series E Preferred Stock
and dividends sought to be converted, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall
be payable to such Holder in the event it obtains judgment.
5. Automatic Conversion.
(a) At the option of the Corporation, the shares of Series E
Preferred Stock and dividends not previously converted into shares of
Common Stock shall be converted into shares of Common Stock at the
Conversion Price without further action of the Holder provided (i)
the shares of Common Stock issuable upon conversion of the Preferred
Stock have been registered under the Securities Act, and (ii) the
Common Stock has traded at or above $9.00 per share for thirty (30)
consecutive trading days, ending within ten (10) days of the notice
of the Automatic Conversion as provided herein.
(b) Notice of the Automatic Conversion of Series E Preferred
Stock by the Corporation pursuant to this paragraph 5 shall be given
by first class mail, return receipt requested, not less than thirty
(30) days prior to the date fixed by the Corporation for the
Automatic Conversion (the "Automatic Conversion Date"). As
applicable, the notice shall specify the number of shares to be
converted, the date fixed for conversion, and the Conversion Price
per share, as provided in paragraph 4(b) herein.
(c) The Holder of any certificate for shares of Series E
Preferred Stock that is converted pursuant to this Section 5 shall
surrender such certificate at the principal office of any transfer
agent for said stock (the "Transfer Agent") properly endorsed for or
accompanied by duly executed instruments of transfer (and such other
transfer papers as said Transfer Agent may reasonably require). The
Holder of the shares so surrendered for conversion shall be entitled
to receive (except as otherwise provided herein) a certificate or
certificates which shall be expressed to be fully paid and non-
assessable for the number of shares of Common Stock to which such
Holder shall be entitled upon such conversion registered in the name
of such Holder.
(d) On and after the Automatic Conversion Date and
notwithstanding that any certificate for shares of Series E Preferred
Stock so called for conversion shall not have been surrendered for
cancellation, all dividends on the Series E Preferred Stock called
for conversion shall cease to accrue and the shares represented
thereby shall no longer be deemed outstanding and all rights of the
Holders thereof as Holders of the Corporation shall cease and
terminate, except the right to receive the shares of Common Stock
upon conversion as provided herein.
(e) In no event shall an Automatic Conversion occur without
the consent of the Holder of Series E Preferred Stock at any time
unless the Common Stock to be delivered upon conversion will be upon
delivery and thereafter immediately resalable, without restrictive
legend and upon such resale freely transferable on the transfer books
of the Corporation.
6. Voting Rights. The shares of Series E Preferred Stock shall
not have voting rights.
7. Event of Default. The occurrence of any of the following
events of default ("Event of Default") shall, after the applicable period
to cure the Event of Default, cause the dividend rate of 6% described in
paragraph 2 hereof to become 12% from and after the occurrence of such
event, and the Holder shall have the option to require the Corporation to
redeem the Series E Preferred Stock held by such Holder by the immediate
payment to the Holder by the Corporation of a sum of money equal to the
number of shares that would be issuable upon conversion of an amount of
Stated Valued and accrued dividends designated by the Holder, at the
Conversion Price in effect as of the trading day prior to the date notice
is given to the Corporation multiplied by the average closing ask price of
the Corporation's Common Stock on such date:
(a) The Corporation fails to pay any dividend payment
required to be paid pursuant to the terms of paragraph 2 hereof or
the failure to timely pay any other sum of money due to the Holder
from the Company and such failure continues for a period of ten (10)
days after written notice to the Corporation from the Holder.
(b) The Corporation breaches any material covenant, term or
condition of the Subscription Agreement entered into between the
Corporation and Holder relating to Series E Preferred Stock or in
this Certificate of Designation, and such breach continues for a
period of seven (7) days after written notice to the Corporation from
the Holder.
(c) Any material representation or warranty of the
Corporation made in this Certificate of Designation shall be false or
misleading.
(d) The Corporation shall make an assignment of a substantial
part of its property or business for the benefit of creditors, or
apply for or consent to the appointment of a receiver or trustee for
it or for a substantial part of its property or business, or such a
receiver or trustee shall otherwise be appointed.
(e) Any money judgment, confession of judgment, writ or
similar process shall be entered against the Corporation or its
property or other assets for more than $500,000, and is not vacated,
satisfied, bonded or stayed within 45 days.
(f) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or
against the Corporation.
(g) The failure to maintain a listing of the Common Stock on
the NASD OTC Bulletin Board (or successor market, if any).
(h) An order entered by a court of competent jurisdiction, or
by the Securities and Exchange Commission, or by the National
Association of Securities Dealers, preventing purchase and sale
transactions in the Corporation's Common Stock.
(i) The Corporation's failure to timely deliver Common Stock
to the Holder pursuant to paragraph 4 hereof.
8. Status of Converted or Redeemed Stock. In case any shares of
Series E Preferred Stock shall be redeemed or otherwise repurchased or
reacquired, the shares so redeemed, converted, or reacquired shall resume
the status of authorized but unissued shares of Preferred Stock and shall
no longer be designated as Series E Preferred Stock.
CHINA PEREGRINE FOOD CORPORATION
Dated: June 24, 1999 By:_____________________________
Roy G. Warren, President
EXHIBIT A
NOTICE OF CONVERSION
(To Be Executed By the Registered Holder in Order to Convert the Series E
Convertible Preferred Stock of China Peregrine Food Corporation)
The undersigned hereby irrevocably elects to convert $______________ of the
Stated Value of the above Series E Convertible Preferred Stock into shares
of Common Stock of China Peregrine Food Corporation (the "Corporation")
according to the conditions hereof, as of the date written below.
Date of Conversion:________________________________________________
Applicable Conversion Price Per Share:_____________________________
Conversion Price Calculation:
___________________________________________________
Number of Common Shares Issuable Upon This Conversion:_____________
Signature:_________________________________________________________
Print Name:________________________________________________________
Address:___________________________________________________________
___________________________________________________________________
Deliveries Pursuant to this Notice of Conversion Should Be Made to:
___________________________________________________________________
___________________________________________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June
30, 1999 unaudited financial statements and is qualified in its entirety by such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 485,671
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<RECEIVABLES> 1,255,402
<ALLOWANCES> 652,830
<INVENTORY> 1,099,733
<CURRENT-ASSETS> 2,573,780
<PP&E> 5,572,588
<DEPRECIATION> 666,341
<TOTAL-ASSETS> 8,865,692
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0
2,189,186
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<OTHER-SE> 8,998,573
<TOTAL-LIABILITY-AND-EQUITY> 8,865,692
<SALES> 2,928,810
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<CGS> 2,631,247
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<OTHER-EXPENSES> 1,648,084
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<INTEREST-EXPENSE> 141,166
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<EXTRAORDINARY> (756,052)
<CHANGES> (259,757)
<NET-INCOME> (2,594,309)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
