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
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
<S> <C> <C>
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
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
China Peregrine Food Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
<S> <C> <C>
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
===============================
</TABLE>
See accompanying to consolidated financial statements.
China Peregrine Food Corporation and Subsidiaries
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
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)
</TABLE>
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
<TABLE>
<CAPTION>
Three Three
Months Ended Months' Ended
March 31, 1998 March 31, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
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 - -
==============================
</TABLE>
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
- ----------------------
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
- ----------
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
-----------------------------------
Roy G. Warren, President
Exhibit 4.
CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE
RIGHTS OF SERIES D 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 D 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 D 6% Cumulative Convertible
Preferred Stock by resolution of the Board of Directors:
Series D 6% Cumulative Convertible Preferred Stock, $.001 par value.
1. Designation: Number of Shares. The designation of said series of
Preferred Stock shall be Series D 6% Cumulative Convertible Preferred Stock
(the "Series D Preferred Stock"). The number of shares of Series D
Preferred Stock shall be 115,000. Each share of Series D Preferred Stock
shall have a stated value equal to $10 (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 D Preferred Share.
2. Dividends.
(a) The Holders of outstanding shares of Series D Preferred
Stock shall be entitled to receive preferential 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
will be paid or declared and set apart for payment on any shares of
any Common Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, or other class of stock presently
authorized or to be authorized (the Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, and such
other stock being hereinafter collectively the "Junior Stock") at the
rate of 6% simple interest per annum on the Stated Value per share
payable quarterly commencing with the quarter ending June 30, 1999
when as and if declared; provided however that dividend payments will
be made in additional fully paid and non assessable shares of Series
D Preferred Stock at a rate of one share of Series D Preferred Stock
for each $10 of such dividend not paid in cash, and the issuance of
such additional shares shall constitute full payment of such
dividend. Dividends may be paid at the Company's option with Series D
Preferred Stock only if the Common Stock deliverable upon conversion
of such Series D Preferred Stock will have been included for public
resale in an effective registration statement filed with the
Securities and Exchange Commission on the dates such dividends are
payable and paid to the Holder, otherwise the dividend will be paid
in cash.
(b) The dividends on the Series D 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 D Preferred Stock then outstanding from the date
from and after which dividends thereon are cumulative to the end of
the quarterly dividend period next preceding such time shall not have
been paid or declared and set apart for payment, or if the full
dividend on all such outstanding Series D Preferred Stock for the
then current dividend period shall not have been paid or declared and
set apart for payment, 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 D Preferred Stock or any shares of
any other class of stock ranking on a parity with the Series D
Preferred Stock ("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.
(c) Dividends on all shares of the Series D Preferred Stock
shall begin to accrue and be cumulative from and after the date of
issuance thereof. A dividend period shall be deemed to commence on
the day following a quarterly dividend payment date herein specified
and to end on the next succeeding quarterly dividend payment date
herein specified.
3. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the Holders of the
Series D Preferred Stock shall be entitled to receive before any
payment or distribution shall be made on the Junior Stock
(specifically including, without limitation, Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock, out of
the assets of the Corporation available for distribution to
stockholders, the Stated Value per share of Series D 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 D 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 D Preferred Stock shall be
insufficient to permit payment in full of the amounts payable as
aforesaid to the Holders of Series D 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 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 D 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 D Preferred Stock shall have the right at
any time commencing on the earlier of 91 days after the filing of
this Certificate of Designation with the Office of the Secretary of
State of Delaware, or the effective date of a registration statement
described in Section 10.1(iv) of the Subscription Agreement entered
into by the Corporation and Holder (or Holder's predecessor) relating
to the Series D Preferred Stock ("Subscription Agreement"), 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 D Preferred Stock registered to the Holder is
less than $10,000, then the whole amount may be converted). All
issued or accrued but unpaid dividends may be converted at the
election of the Holder simultaneously with the conversion of
principal amount of Stated Value of Series D Preferred Stock being
converted.
(b) 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
lesser of: (i) 100% of the average of the Closing Bid Price of the
Corporation'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) at 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
(Lookback Period"). 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 D
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 or the Corporation's Transfer Agent 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 or the Corporation's Transfer Agent 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 D Preferred Stock (together with the Series D Preferred
Stock representing the shares not converted) to the Holder via
express courier, by electronic transfer or otherwise, within three
business days after receipt by the Corporation of the original notice
of conversion and the Series D 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 D Preferred Stock being
converted. In the case of any Series D Preferred Stock which is
converted in part only the Holder of shares of Series D 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 D
Preferred Stock. Nothing herein shall be construed to give any
Holder of shares of Series D 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 or Transfer Agent 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 D Preferred Stock so converted.
Upon the conversion of any shares of Series D 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 D Preferred Stock, and payment of dividends on
Series D Preferred Stock to issue a fraction of a share of its Series
D Preferred Stock and shall instead deliver a stock certificate
representing the next whole number.
The Corporation and Holder may not convert that amount of the
Series D Preferred Stock on a Conversion Date in connection with that
number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of Common Stock beneficially owned by the
Subscriber and its affiliates on such Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the
Series D Preferred Stock with respect to which the determination of
this proviso is being made on such Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of
more than 9.99% of the outstanding shares of Common Stock of the
Corporation. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13d-3 thereunder.
(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 D
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 D 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
D 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 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 D Preferred Stock shall have terminated, as part of such
merger lawful provision shall be made so that Holders of Series D
Preferred Stock shall thereafter have the right to convert each share
of Series D 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 D 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 D Preferred Stock shall thereafter have the right to
convert each share of the Series D 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 D 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 D Preferred
Stock and the Common Stock; and the Corporation shall mail to each
Holder of record of Series D 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 D Preferred Stock and for
the Common Stock and to the Holders of record of the Series D
Preferred Stock.
(h) So long as any shares of Series D 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 D
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 D Preferred Stock, but all transfer taxes and income taxes
that may be payable in respect of any change of ownership of Series D
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 D 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 D 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 D 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.
(l) In addition to any other rights available to the Holder,
if the Corporation fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(c) by the Delivery Date and if
after the Delivery Date the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Common Stock which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then
the Corporation shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which
(A) the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate Stated Value of the shares of Series D
Preferred Stock for which such conversion was not timely honored,
together with interest thereon at a rate of 16% per annum, accruing
until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a
penalty). For example, if the Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 of Stated Value of
Series D Preferred Stock, the Corporation shall be required to pay
the Holder $1,000, plus interest. The Holder shall provide the
Corporation written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
5. Mandatory Conversion.
(a) The shares of Series D Preferred Stock and dividends not
previously converted into shares of Common Stock shall be converted
into shares of Common Stock without further action of the Holder on
the date that is two years from the date of issuance thereof
("Mandatory Conversion Date"), at the Conversion Price and on the
conversion terms specified in paragraph 4(b). Deliveries of Common
Stock upon Mandatory Conversion shall be made as if the Mandatory
Conversion Date were a Conversion Date.
(b) Notice of conversion of Series D Preferred Stock by the
Corporation pursuant to this paragraph 5 shall be given by mail or in
such other manner as may be prescribed by resolution of the Board not
less than thirty (30) days prior to the Mandatory 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.
(c) The Holder of any certificate for shares of Series D
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 Mandatory Conversion Date and
notwithstanding that any certificate for shares of Series D Preferred
Stock so called for conversion shall not have been surrendered for
cancellation, all dividends on the Series D 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 a Mandatory Conversion occur without the
consent of the Holder of Series D 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. Nor may the Corporation effect a Mandatory
Conversion without the consent of the Holder after the occurrence
(whether continuing or not) of an Event of Default as defined in
Paragraph 2 hereof.
6. Voting Rights. The shares of Series D Preferred Stock shall not
have voting rights.
7. Redemption. From and after 40 days after the Effective Date of
the Registration Statement as defined in Section 10.1(iv) of the
Subscription Agreement, the Corporation will have the option of redeeming
the Series D Preferred Stock ("Optional Redemption") 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 ("Notice of Redemption) is given to a Holder
("Redemption Date") 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
("Redemption Amount") 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. A Notice of Redemption may not be given in
connection with any Series D Preferred Stock for which notice of conversion
has been given by the Holder either before or after receipt by the Holder
of a Notice of Redemption except that after receipt by the Holder of a
Notice of Redemption the Holder may elect by giving written notice to the
Corporation within two (2) business days of a Redemption Date to convert no
more than twenty (20%) percent of the Series D Preferred Stock noticed in
the Notice of Redemption. A Notice of Redemption must be accompanied by a
certificate signed by the chief executive officer or chief financial
officer of the Corporation stating that the Corporation has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption
Amount (less any amount that may be converted by a Holder) must be paid in
good funds to the Holder no later than the fifth business day after the
Redemption Date. In the event the Corporation fails to pay the Redemption
Amount by such date, then the Redemption Notice will be null and void and
the Corporation will thereafter have no further right to effect an Optional
Redemption. Any Notice of Redemption must be given to all Holders of
Series D Preferred Stock in proportion to their holdings of Series D
Preferred Stock on a Redemption Date. The minimum Redemption Amount must
be no less than the sum that would be realized by the Holder on the
Redemption Date of a sale of the amount of Common Stock receivable upon
conversion of the amount of Series D Preferred Stock being redeemed plus
the dollar amount of accrued dividends on the Series D Preferred Stock
being redeemed 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.
8. 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 D 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 D 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 the Subscription Agreement, or in any agreement, statement or
certificate given in writing pursuant thereto 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 $100,000, 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 or the Subscription
Agreement.
(j) The occurrence of a Non-Registration Event as described in
Section 10.4 of the Subscription Agreement.
9. Status of Converted or Redeemed Stock. In case any shares of
Series D 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 D Preferred Stock.
10. Additional Restrictions. Until 180 days after the Effective
Date, as defined in Section 10.1(iv) of the Subscription Agreement and
provided that shares of the Series D Preferred Stock are then outstanding,
the Corporation will not issue any preferred stock that will be senior to
the Series D Preferred Stock except that the Corporation may issue such
preferred stock provided such preferred stock is not senior to the Series D
Preferred Stock during the 180 day period commencing on the Effective Date
of the above described Registration Statement. For so long as any shares
of Series D Preferred Stock are outstanding, the Corporation will not amend
the terms of any outstanding class of Preferred Stock of the Company, and
will not amend the terms of the Series D Preferred Stock without the
written consent of the Holder of the Series D Preferred Stock.
CHINA PEREGRINE FOOD CORPORATION
Dated: March 8, 1999 By: /s/ Roy G. Warren
------------- -----------------
Roy G. Warren, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 1999 unaudited financial statements and is qualified in its entirety by such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 876,033
<SECURITIES> 0
<RECEIVABLES> 1,341,062
<ALLOWANCES> 648,449
<INVENTORY> 1,166,498
<CURRENT-ASSETS> 2,886,321
<PP&E> 5,699,260
<DEPRECIATION> 493,483
<TOTAL-ASSETS> 9,335,570
<CURRENT-LIABILITIES> 5,472,059
<BONDS> 0
0
1,964,470
<COMMON> 8,403
<OTHER-SE> 8,087,427
<TOTAL-LIABILITY-AND-EQUITY> 9,335,570
<SALES> 1,246,413
<TOTAL-REVENUES> 1,246,413
<CGS> 1,113,624
<TOTAL-COSTS> 1,306,104
<OTHER-EXPENSES> 765,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,300
<INCOME-PRETAX> (701,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (35,845)
<CHANGES> (259,719)
<NET-INCOME> (997,414)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
