UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 0-20549
CHINA PEREGRINE FOOD CORPORATION
(Exact name of registrant as specified in its amended charter)
Delaware 62-1681831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 US Highway 1, North Palm Beach, Florida 33408 USA
(Address of principal executive offices)
(561) 625-1411
Registrant's telephone number
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal
year if changed since last report)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15 (d) of
the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes [X] No[ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:
Date Class Shares Outstanding
05/10/00 Common Stock 10,684,443
CHINA PEREGRINE FOOD CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements F-1
Condensed balance sheets as of F-1
March 31, 2000 (unaudited) and December 31, 1999
Condensed statements of operations F-2
(unaudited) for the three months ended
March 31, 2000 and 1999
Condensed statements of cash flows F-3
(unaudited) for the three months ended
March 31, 2000 and 1999
Notes to condensed financial statements (unaudited) F-4
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes In Securities and Use of Proceeds 11
Item 6. Exhibits and reports on Form 8-K 12
SIGNATURES 12
EXHIBITS 13
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 16,854 $ 9,394
Other receivable - 79,728
Prepaid expenses 18,196 62,682
-----------------------------
Total current assets 35,050 151,804
-----------------------------
Property, plant and equipment, net 131,264 130,573
Investment in and advance to Meilijian 1,246,422 1,199,744
Goodwill 229,148 213,161
Licensing rights 214,286 192,857
Deposit 10,000 10,000
-----------------------------
Total assets $ 1,866,170 $ 1,898,139
=============================
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of note payable $ 277,741 $ 175,904
Account payable and accrued liabilities 250,833 229,204
-----------------------------
Total current liabilities 528,574 405,108
Dividend payable 370,039 415,627
Note payable, less current portion 127,500 212,468
-----------------------------
Total liabilities 1,026,113 1,033,203
Shareholders' Equity
Series A convertible preferred stock; par value
$0.001 per share, 500,000 shares authorized, 500,000
shares issued and outstanding 500 500
Series B convertible, 9% cumulative, and redeemable
preferred stock; stated value $1.00 per share,
1,260,000 shares authorized, 1,260,000 shares issued
and outstanding 1,260,000 1,260,000
Series C convertible, 8% cumulative and redeemable
preferred stock, stated value $3.00 per share , 14,904
shares issued and outstanding 44,713 44,713
Series D convertible, 6% cumulative and redeemable
preferred stock, stated value $10.00 per share,
76,250 shares issued and outstanding 762,500 1,262,500
Common stock; at par value $0.001 per share,
20,000,000 shares authorized, 10,278,129 and 10,684,443
shares issued and outstanding 10,278 10,684
Additional paid-in capital 11,256,952 11,887,959
Accumulated deficit (12,360,537) (13,467,725)
Accumulated other comprehensive loss - translation
adjustment (134,349) (133,695)
-----------------------------
Total shareholders' equity 840,057 864,936
-----------------------------
Total liabilities and shareholders' equity $ 1,866,170 $ 1,898,139
=============================
</TABLE>
See accompanying notes to financial statements.
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
Statement of Operations
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 2000
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue $ - $ -
Cost of revenue - -
---------------------------
Gross profit - -
General and administrative expense 512,652 685,183
Merger transaction expense - -
---------------------------
Loss from operations (512,652) (685,183)
Other income (expense)
Interest expense, net (3,815) (4,909)
Loss on investment in GFP (403,505) -
Loss on investment in Meilijian (41,597) (47,332)
Other - -
---------------------------
Loss before income taxes (961,569) (737,424)
Income tax provision - -
Net loss (961,569) (737,424)
Dividends accrued for Series B preferred stock (28,350) (28,350)
Dividends accrued for Series C preferred stock (5,444) (883)
Dividends paid and accrued for Series D preferred stock (2,051) (340,531)
---------------------------
Net loss applicable to common shareholders $ (997,414) $(1,107,188)
===========================
Weighted average number of common shares outstanding 7,979,103 10,343,018
===========================
Basic and diluted loss per share $ (0.12) $ (0.11)
Comprehensive loss and its components consist of
the following:
Net loss $ (997,414) $(1,107,188)
Foreign currency translation adjustment (1,367) (654)
---------------------------
Total comprehensive loss $ (998,781) $1,107,842)
===========================
</TABLE>
See accompanying notes to financial statements.
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
Statement of cash flows
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31, March 31,
1999 2000
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(961,569) $(737,424)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 43,065 45,586
Loss on investment in Meilijian 41,597 47,332
Loss on investment in GFP 403,505 -
Stock issuance in exchange for services - 50,000
Issuance of common stock for penalty expense incurred
on Series D Preferred stock - 93,750
Increase (decrease) from changes in:
Stock subscription receivables 235,000 -
Prepaid expenses (64,418) (44,486)
Other receivable - (79,728)
Deposits and others (5,000) -
Accounts payable and accrued expenses 14,185 151,858
-------------------------
Net cash used in operating activities (293,635) (473,112)
-------------------------
Cash flows from investing activities:
Purchase of equipment (29,440) (7,479)
Advances to GFP (234,112) -
-------------------------
Net cash used in investing activities (263,552) (7,479)
-------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 315,000 -
Proceeds of Series D preferred stock 535,000 490,000
Proceeds from stock warrants exercised 30,000 -
Payment of note payable and bank loan (60,299) (16,869)
Net cash provided by financing activities 819,701 473,131
-------------------------
Net decrease in cash and cash equivalents 262,514 (7,460)
Cash and cash equivalents, beginning of period 305,233 16,854
-------------------------
Cash and cash equivalents, end of period $ 567,747 $ 9,394
=========================
Cash paid during the period:
Interest $ 6,452 $ 4,913
=========================
Supplemental disclosure of non-cash activities
Conversion of Series C preferred stock to common stock 216,030 -
Issuance of Series C preferred stock subscribed 135,000 -
Issuance of common stock subscribed 100,000 -
Licensing right acquired through assumption of note
payable 300,000 -
Conversion of accrued services fees to common stock - 173,486
Deemed dividend on Series D preferred stock 324,176
Penalty expense for non-registration of common
underlying Series D preferred stock and warrants 35,845 45,588
Effect of changes of exchange rate on investment and
advances To GFP and Meilijian $ (1,366) $ 645
=========================
</TABLE>
See accompanying notes to financial statements.
China Premium Food Corporation
(formerly known as China Peregrine Food Corporation)
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the nine months ended March 31,
1999 and 2000, respectively, is unaudited)
1. Presentation of Interim Information
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310
of regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The accompanying unaudited financial
statements reflect all adjustments that, in the opinion of the management,
are considered necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The
results of operations for such periods are not necessarily indicative of
the results expected for the full fiscal year or for any future period. The
accompanying financial statements should be read in conjunction with the
audited consolidated financial statements of the Company included in the
Company's Form 10-KSB for the year ended December 31, 1999.
China Peregrine Food Corporation (formerly Shakespeare Holding, Inc.) (the
Company) was incorporated under the laws of the State of Delaware on April
26, 1996. Shakespeare Holdings, Inc. was a shell company without any
substantial assets and operating activities until it merged with China
Peregrine Enterprises, Ltd. in March, 1997 and the Company changed to China
Peregrine Food Corporation. On February 1, 2000, the Company changed its
name to China Premium Food Corporation.
The Company owns equity interests in two joint ventures in China, 70% in
Green Food Peregrine Children's Food Co. Ltd. (GFP) and 52% in Hangzhou
Meilijian Dairy Products, Co. Ltd.(Meilijian). On January 3, 2000, the
Company commenced to terminate its interest in GFP. Accordingly, the
Company wrote off its investment in and advance to GFP as of December 31,
1999.
The Company's financial statements for the quarter ended March 31, 1999
have been restated based on equity method. Prior financial statements were
prepared on a consolidation basis whereby the Company consolidated GFP and
Meilijian. Subsequent to issuing the 1998 financial statements, the
Company agreed with SEC's position that, despite its ownership of more than
50% equity interest in each of these entities, the Company did not control
these entities due to the influence of the Chinese government owned
minority shareholders. As such, the Company agreed that the equity method
should be used to account for the Company's investment in these foreign
subsidiaries. The restatement did not have an impact on the previously
reported net loss for the quarter ended March 31, 1999.
2. Stock Options
SFAS No. 123 allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income disclosure for employee
stock option grants made in 1995 and future years as if the fair-value-
based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma disclosure provisions of SFAS No. 123.
3. Net Loss per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), which is effective for financial
statements issued for the periods after December 15, 1997, including
interim periods. Net loss per share for the three months ended March 31,
2000 and nine month ended March 31, 2000, respectively does not include the
effects of outstanding stock options and warrants, because such effects are
anti-dilutive.
4. Equity Transactions
On January 27, 2000, the Company issued 100,000 shares of its common stock
pursuant to the exercise of options granted in October 1999 to three non-
employees, who are to provide advisory and consulting services to the
Company. These option agreements provide for the issuance of a total of
1,016,000 shares of common stock pursuant to an S-8 registration statement,
filed October 9, 1999. These options expire on October 17, 2000. Prior to
January 27, 2000, 766,000 options were exercised. The options exercised on
January 27, 2000 were at a price of $0.75 per share.
On February 1, 2000, the Company amended its Rule 506 offering with respect
to the Series D Preferred Stock originally offered on March 9, 1999 and
April 23, 1999, respectively. Pursuant to this amended offering, the
Company issued an additional 50,000 shares of the Series D Preferred Stock
and amended the total number of warrants to be issued by the issuance of
additional warrants for 1,300,000 shares of common stock to the existing
holders of the Company's Series D Preferred Stock. The Series D Peferred
and accompanying warrants were priced at $10.00 per unit and resulted in
proceeds of $490,000 in cash, net of $10,000 of legal and issuance
expenses. The Series D Preferred Stock has a Stated Value of $10.00 per
share and the same conversion feature disclosed before. The warrants for
1,300,000 shares of common stock have an exercise price of $0.625 per share
and an expiration date of January 31, 2003. In connection with this sale,
the Company issued 125,000 shares of its common stock to such holders to
compensate them for the delay in registering the resale of the common stock
underlying the Series D Preferred and the warrants, and 50,000 shares of
common stock to a finder. These shares of common stock are issued at $0.75
per share, the market value on February 1, 2000 for the Company's common
stock.
In addition, Series D preferred stock entitles the holder to convert the
Series D preferred stock into the Company's common stock. The number of
shares of common stock issuable upon conversion of each share of Series D
Preferred Stock shall equal (i) the sum of (A) the Stated Value per share
and (B) at the holder's election accrued and unpaid dividends on such
share, divided by (ii) the conversion price. The conversion price shall be
equal to the lessor of: (i) 100% of the average of the closing bid price of
the Company's common stock for the trading day immediately preceding the
date of issuance of the shares of Series D Preferred Stock to the holders,
or (ii) 80% of the average of the three lowest closing bid prices for the
22 trading days immediately preceding the conversion of the respective
shares of Series D Preferred Stock. In accordance with the Provisions of
EITF 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Commission Ratios", the
issuance of these units resulted in the Company being required to record
deemed dividends of $500,000 over the period from the date of issuance to
the date the preferred stock first becomes convertible. At The Company
recognized $324,176 deemed dividend in the first quarter ended March 31,
2000 and will recognized the remaining $175,824 in the second quarter.
On February 7, 2000, the Company signed agreements with two non-employees
in exchange for the graphic design and legal services provided by these two
professionals to the Company, to issue a total of 131,314 shares of common
stock pursuant to a 1933 Act Form S-8 registration statement which will be
filed by the Company. The shares issued for these agreements are valued at
$0.75 per share, which was the market value of the Company's common stock
on February 7, 2000, the execution date of the agreements
5. Subsequent Events
On April 6, 2000, the Company issued 6,374 shares of common stock, at a
market price of $0.797 per share, in exchange for $6,000 of consulting fees
to a service provider.
On April 7, 2000, the Company closed a Rule 506, Regulation D exempt
offering for 150,000 shares of Series F Convertible Preferred Stock, having
a per share Stated Value of $10.00, and Warrants which entitle the holders
of the Series F Preferred to purchase an aggregate of 3,000,000 shares of
common stock. This offering resulted in net proceeds of $1,480,000, net of
$20,000 of legal and issuance expenses. Each Preferred share is
convertible to the common stock of the Company at a conversion price of
$0.50 per common share, based upon the Stated Value divided by conversion
price times the number of shares to be converted. The Series F Preferred
have no voting rights or redemption features and no dividends rights beyond
those attributable to the Company's common stock. The Warrants for
3,000,000 shares of common stock have an exercise price of $1.00 per share
and are exercisable immediately for a period of three years. The Company
can call 50% of Warrants if its common stock trades at 200% of the closing
price of $0.75 per share on April 7, 2000 for 10 consecutive trading days
and 100% of the Warrants if its common stock trades at 300% of the closing
price of $0.75 per share on April 7, 2000 for 10 consecutive trading days.
In addition, the Company issued a Warrant to a consultant in connection
with this transaction, which entitles the holder to purchase an aggregate
of 1,600,000 shares of common stock at an exercise price of $0.84 per
share. The Warrant is exercisable immediately for a period of three years
and has the same "call" provisions as the investor Warrants described
above. This entire transaction provides for total potential proceeds of
$5,844,000, based upon the issuance of a maximum of 7,600,000 shares of
common stock underlying the Series F Preferred and the Warrants, at an
average price per share of $0.77. The holders of the Preferred and the
Warrants have certain registration rights for the resale of the Company's
common stock underlying the Series F Convertible Preferred and the
warrants.
ITEM 2. Management=s Discussion and Analysis of Financial Condition and
Results of Operations - Three Months Ended March 31, 2000 and 1999
During the first quarter of 2000, ending March 31, the Company
continued to shift its business focus and strategy from the production of
milk products to a Company involved in the marketing and distribution of a
broad range of food products in China, including premium branded items.
In February of 2000, the Company announced an agreement in principle
to acquire the majority equity interest in and control of the operations of
Mandarin Fine Foods Company of Beijing and Shanghai. Mandarin is the
dominant distributor of premium food products to four and five star hotels
throughout China. Mandarin's customers include most of the finest hotels in
China and many top restaurants in Beijing and Shanghai, the two largest and
most advanced cities in China. The bulk of Mandarin's $8 million dollar
sales volume is derived from eight product categories, most of which are
imported from outside China. Mandarin is the largest importer of prime,
aged, U.S. beef to China and represents approximately 60% of all premium
U.S. beef exported to China. Additional products include dairy and cheese,
Italian food dry goods, caviar, smoked salmon, oysters, various other meat
products and seafood, and several pastry and dessert foods. Currently,
Mandarin processes its caviar in China, utilizing local Sturgeon, and
produces its own "fresh" pasta in China. On May 11, 2000, the Company
executed a definitive agreement for the acquisition of Mandarin.
Prior to the year ending December 31, 1999, the Company reported its
financial affairs and those of its Chinese subsidiaries on a consolidated
basis. In connection with prior filings with the Securities and Exchange
Commission, the Company received comments from the Commission's staff that
these financial matters should be reported on an equity method basis rather
than a consolidated basis. The Company has been advised by the Commission's
staff reviewer to report its financial affairs utilizing the equity method.
In order to expedite the process of the review of the SEC filings in question,
the Company made the decision not to seek a further review of the
Commission's staff reviewer's conclusions. Accordingly, the Company has
restated its and its subsidiaries' prior year financial statements presented
in its 10-KSB filing for the year ending December 31, 1999, as well as the
current 10-QSB filing for the quarter ending March 31, 2000, on the equity
method basis.
RESULTS OF OPERATIONS
Financial Condition March 31, 2000
- ----------------------------------
As of March 31, 2000, the Company had an accumulated deficit of US
$13,143,549. As of March 32, 2000, the Company had cash on hand of US $9,394
and reported total shareholders' equity of US $864,936.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
- ---------------------------------------------------------------------------
1999
- ----
The Company's net loss decreased approximately 30% to $737,424 in 2000
from $961,569 in 1999. The Company reported a loss per share of $0.12 in 1999
and $0.11 in 2000. The decrease in the loss per share was due to 1) the write
off of the Company's investment in Green Food Peregrine (GFP), as of
December 31, 1999 (the loss on investment in GFP was $403,505 for the quarter
ended March 31, 1999); 2) increase in general and administrative expenses of
$172,531 in 2000 compared to same period in 1999; and 3) increase in number
of shares of common stock outstanding as of March 31, 2000. As of March
31,2000 there were 10,684,443 shares of common stock outstanding compared
with 8,403,462 shares of common stock outstanding as of March 31, 1999. Due
to the timing of issuance of new shares, however, the weighted average number
of shares of common stock outstanding in 2000 was 10,343,018. The loss per
share in 2000 decreased by approximately 10% compared with 1999.
General and administrative expenses increased by approximately 34% to
$685,183 in 2000 from $512,652 in 1999. This increase reflects the legal
and accounting expenses associated with the restatement of the Company's
financial statements on the equity basis, fund raising exercises activities,
and the preparation and filing of SEC reporting documents by the Company.
Losses on investments in the Company's Hangzhou Meilijian subsidiary
increased approximately 13.7% to $47,332 in 2000 from $41,597 in 1999. The
increase reflected the result of high level of selling and general and
administrative expenses associated with the continuing attempts to penetrate
the market and the introduction of new products in Hangzhou. Gross profit
for the current quarter increased 29.2% from $194,157 in 1999 to $250,984 in
2000, with an 11.3% increase in revenue from $1,121,441 in 1999 to
$1,248,851 in 2000. As a percentage of sales, the cost of sales deceased
from 82.7% in 1999 to 79.1% in 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company reported net cash used in operating
activities of $473,112, net cash used in investing activities of $7,479, and
net cash provided by financial activities of $473,131.
As of March 31, 1999, the Company reported net cash used in operating
activities of $293,635, net cash used in investing activities of $263,552,
and net cash provided by financing activities of $819,701.
Net cash used in operating activities increased approximately 61% to
$473,112 in 2000 from $293,635 in 1999. The increase reflects increased
costs incurred in the three months ended March 31, 2000 supporting the U.S.
operations of the Company.
Net cash used in investing activities decreased approximately 97% to
$7,479 in 2000 from $263,552 in 1999. The decrease mainly was due to the
cessation of advances to support the operations of Green Food Peregrine.
Net cash provided by financing activities decreased 42.2% to $473,131
in 2000 from $818,701 in 2000. The decreased need for fund raising activities
resulted from the cessation of advances to support the operations of Green
Food Peregrine.
Going forward, the Company's primary requirements for cash (other
than for acquisition activities) consist of (1) purchasing transportation
equipment for distribution of its products; (2) expenses related to product
development, marketing and advertising in Shanghai, Hangzhou and other
cities where the Company may enter into strategic alliances with local
dairies for the production of Looney Tunes(tm) milk products; (3) payments of
guaranteed royalty payments to Warner Bros. under existing licensing
agreements; and (4) $300,000 in additional capital contributions to the
Hangzhou Meilijian joint venture. The Company estimates that net cash
provided by current operating activities together with cash on hand will
enable the Company to meet its anticipated cash requirements for the 2000
fiscal year.
On April 7, 2000, the Company received gross proceeds approximating
$1,500,000 to fund its working capital and investment capital needs. These
funds represent the first of a series of investments that are planned and
structured in the form of 3,000,000 stock warrants and 1,600,000 stock
warrants at $1.00 and $0.84 exercise prices, respectively. These warrants
are callable when our shares trade at $1.60 and $2.40, respectively, thereby
enabling the Company to force the exercise and resultant additional
investment of $4,344,000 at an average exercise price of $.94.
The Company currently has monthly working capital needs of $140,000.
This represents a significant reduction resulting from the commencement of
joint venture termination procedures and the elimination of the funding of
Green Food Peregrine's operations. The Company expects Meilijian will soon
be profitable because of new product launches as well as the completion of
the Looney Tunes(tm) production agreements that are now being pursued with
other dairies in China.
In addition, in March of 1999, the Company entered into an exclusive
distribution agreement with Lance Food of Charlotte, NC, for the
distribution of snack foods in China. In December 1999, the Company
received local governmental approval for and established a wholly owned
subsidiary in the the Wai Gao Qiao "Free Trade Zone" in Shanghai, China,
known as China Premium Food Corporation (Shanghai) Company, Ltd. This
subsidiary will handle, among other things, the import and distribution of
Lance snack foods in China. The logistic arrangements have been completed
and the first shipment of Lance snacks is expected to be sent to Shanghai in
May.
Management therefore believes that the Company will have positive cash
flow from operations by the third quarter of 2000, and will not need for
additional funding to support existing operations.
DEBT STRUCTURE
During the process of acquiring from American Flavor China, Inc. the
52% of equity interest in and to Hangzhou Meilijian, the Company issued a
promissory note to assume the American Flavor's debt owed to a supplier.
The face value of that note was $282,637.53 at interest rate of 10.5% per
annum without any collateral attached. The note has a monthly installment
payment of $7,250 with 23 payments and a balloon payment of $159,862.38
on July 15, 2000. The minimum cash payments are $87,000 in 1999 and
approximately $203,362 in 2000. The note has a late charge article that the
Company will be charged by 3% of overdue principal and interest installment
if the note holder does not receive the payment within 15 days of due dates.
EFFECTS OF INFLATION
The Company believes that inflation has not had material effect on
its net sales and results of operations.
EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES
The Company's operating subsidiary, Hangzhou Meilijian, is located
in China. It buys and sells products in China using Chinese renminbi as
functional currency. Based on Chinese government regulation, all foreign
currencies under the category of current account are allowed to freely
exchange with hard currencies. During the past two years of operation,
there were no significant changes in exchange rates. However, there is no
assurance that there will be no significant change in exchange rates in the
near future.
NEW ACCOUNTING STANDARDS NOT ADOPTED YET
Statement of Financial Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective
of which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standard on January 1, 2000
to affect its financial statements.
YEAR 2000 STATEMENT
The Company's project to assess and correct Y2K related issues
regarding the year 2000 has been completed, and the Company has not
experienced any significant Y2K related events. Interactions with other
parties' systems make it difficult to conclude there will not be future
effects. Consequently, at this time, management cannot provide assurances
that the Year 2000 issues will not have an impact on the Company's operations.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 27, 2000, the Company issued 100,000 shares of its common
stock pursuant to the exercise of options granted in October 1999 to three
non-employees, who are to provide advisory and consulting services to the
Company. These option agreements provide for the issuance of a total of
1,016,000 shares of common stock pursuant to an S-8 registration statement,
filed October 9, 1999. These options expire on October 17, 2000. Prior to
January 27, 2000, 766,000 options were exercised. The options exercised on
January 27, 2000 were at a price of $0.75 per share.
On February 1, 2000, the Company amended its Rule 506 offering with
respect to the Series D Preferred Stock originally offered on March 9, 1999
and April 23, 1999, respectively. Pursuant to this amended offering, the
Company issued an additional 50,000 shares of the Series D Preferred Stock
and amended the total number of warrants to be issued by the issuance of
additional warrants for 1,300,000 shares of common stock to the existing
sophisticated and accredited holders of the Company's Series D Preferred
Stock. The Series D Peferred and accompanying warrants were priced at
$10.00 per unit and resulted in proceeds of $490,000 in cash, net of $10,000
of legal and issuance expenses. The Series D Preferred Stock has a Stated
Value of $10.00 per share and the same conversion feature disclosed before.
The warrants for 1,300,000 shares of common stock have an exercise price of
$0.625 per share and an expiration date of January 31, 2003. In connection
with this sale, the Company issued 125,000 shares of its common stock to such
holders to compensate them for the delay in registering the resale of the
common stock underlying the Series D Preferred and the warrants, and 50,000
shares of common stock to a finder. These shares of common stock are issued
at $0.75 per share, the market value on February 1, 2000 for the Company's
common stock.
On February 7, 2000, the Company signed agreements with two non-
employees in exchange for the graphic design and legal services provided by
these two professionals to the Company, to issue a total of 131,314 shares
of common stock pursuant to a 1933 Act Form S-8 registration statement
which will be filed by the Company. The shares issued for these agreements
are valued at $0.75 per share, which was the market value of the Company's
common stock on February 7, 2000, the execution date of the agreements
5. Subsequent Events
On April 6, 2000, the Company issued 6,374 shares of common stock, at
a market prices per share, in exchange for $6,000 of consulting fees to a
service provider.
On April 7, 2000, the Company closed a Rule 506, Regulation D exempt
offering for 150,000 shares of Series F Convertible Preferred Stock, and
Warrants, which entitle the holders of the Series F Preferred to purchase
an aggregate of 3,000,000 shares of common stock, at a price of $10.00 per
stock/warrant unit. This offering was made to sophisticated and accredited
investors and resulted in net proceeds of $1,480,000, net of $20,000 of legal
and issuance expenses. Each Preferred share has a per share stated value of
$10.00 and is convertible to the common stock of the Company at a conversion
price of $0.50 per common share, based upon the Stated Value divided by
conversion price times the number of shares to be converted. The Series F
Preferred have no voting rights or redemption features and no dividends
rights beyond those attributable to the Company's common stock. The Warrants
for 3,000,000 shares of common stock have an exercise price of $1.00 per
share and are exercisable immediately for a period of three years. The
Company can call 50% of Warrants if its common stock trades at 200% of the
closing price of $0.75 per share on April 7, 2000 for 10 consecutive trading
days and 100% of the Warrants if its common stock trades at 300% of the
closing price of $0.75 per share on April 7, 2000 for 10 consecutive trading
days. In addition, the Company issued a Warrant to a consultant in
connection with this transaction, which entitles the holder to purchase an
aggregate of 1,600,000 shares of common stock at an exercise price of $0.84
per share. The Warrant is exercisable immediately for a period of three
years and has the same "call" provisions as the investor Warrants described
above. This entire transaction provides for total potential proceeds of
$5,844,000, based upon the issuance of a maximum of 7,600,000 shares of
common stock underlying the Series F Preferred and the Warrants, at an
average price per share of $0.77. The holders of the Preferred and the
Warrants have certain registration rights for the resale of the Company's
common stock underlying the Series F Convertible Preferred and the warrants.
On May 11, 2000, the Company executed a definitive agreement for the
acquisition of Mandarin Fine Foods Company. The agreement calls for a
56.25% interest in Mandarin to be acquired for the equivalent of $4.5
million. Half of this amount will be in China Premium Foods common stock
valued at $1.75 a share, or $2.25 million. The remainder will be in cash or
China Premium stock, depending on the value of the latter at June 30, 2000.
If the deal is consummated as an all-stock transaction, Mandarin would own
a maximum of 16.6% of China Premium Foods common stock outstanding.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Required by Item 601 of Regulation S-B.
(2) May 11, 2000, Transfer Agreement to acquire Mandarin Fine
Foods Co.
(4) Certificate of Designation for Series F Convertible
Preferred Stock
(27) Financial data schedule
(b) Reports on Form 8-K
Previously filed on January 4, 2000, Re: Management changes.
Previously filed on January 31, 2000 Re" Mandarin Fine Foods
acquisition; Termination of Green Food Peregrine joint venture;
corporate name change.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf of the
undersigned, duly authorized.
CHINA PEREGRINE FOOD CORPORATION
(Registrant)
Date: March 12, 2000
/s/ Roy G. Warren
--------------------------
Roy G. Warren, President
Item 6 (a) Exhibit (2)
Transfer Agreement and Agreement to Operate
Mandarin Fine Foods Co.
1. Introduction. This Agreement is made this 11th day of May,
2000, by and between China Premium Food Corporation, a corporation
organized under the laws of Delaware, with principal offices at 11300 US
Highway 1, North Palm Beach, Florida 33408 (CHPF), Mandarin Fine Foods
Co., a Chinese registered limited liability company, with principal offices
at No. 725, 7TH District, Jinsong, Chaoyang, Beijing, People's Republic of
China (Mandarin) and Mr. Li Zhi Yun, an individual residing in Beijing,
People's Republic of China c/o Mandarin Fine Foods Co.(Li).
2. Considerations. The following facts and events have been duly
considered by the parties in entering into this Agreement:
2.1 Li presently holds and enjoys 100% of the equity in Mandarin, a
company that possesses a business license in China to distribute and
manufacture both imported and domestic products, among other things, food
products utilized by certain hotels and restaurants in the People's
Republic of China.
2.2. CHPF presently operates its own joint venture business in the
People's Republic of China, under the auspices of certain agreements with
Hangzhou Dairy Co., and has established a wholly owned subsidiary in the
Wai Gao Qiao "Free Trade Zone" in Shanghai, China for the purpose engaging
in an import, export and distribution business in China.
2.3. CHPF presently has 10,453,129 shares of its common stock and
1,871,154 of its preferred stock issued and outstanding. In addition, CHPF
has granted warrants to certain investors and stock options to certain key
personnel for an additional 10,163,533 shares of its common stock.
2.4. Li desires to assign and transfer the majority of his right
title and interest in Mandarin in exchange for cash and an equity position
in CHPF as set forth in this Agreement. The parties acknowledge and
recognize, however, that the complete transfer and assignment of equity in
Mandarin by Li will occur in stages, and that CHPF and Li will each hold
and enjoy less than 100% of Mandarin. The parties further acknowledge and
recognize that the joint ownership of the equity of Mandarin by Li and CHPF
will create a foreign investment joint venture under the applicable laws of
the People's Republic of China.
2.5. Mandarin presently has Registered Capital amounting to RMB
10,000,000. The parties to this Agreement agree and recognize that, with
the consummation of this Agreement, such Registered Capital will be owned
by Li and CHPF in the respective proportions as provided herein, and that
all of such Registered Capital will be contributed by Li and CHPF to a
resulting joint venture between Li and CHPF.
2.6. The legal status aforesaid joint venture as a Foreign
Investment Joint Venture Company, which will be created upon the transfer
of the equity in Mandarin held by Li to CHPF, is subject to approval by the
appropriate local governmental agencies or agencies of the People's
Republic of China.
2.7. While the parties to this Agreement anticipate approval of the
transfer and assignment provided herein by the appropriate local
governmental agency or agency of the People's Republic of China, as
appropriate, the parties are unsure of the time frame within which such
approval may occur.
2.8. Notwithstanding the foregoing, the parties desire to continue
to move forward with the transfer of operational control of Mandarin to
CHPF in accordance with the terms and conditions of this Agreement, during
the interim period subsequent to the execution of this Agreement and prior
to the approval of the transfer and assignment herein by the appropriate
local governmental agency or agency of the People's Republic of China, as
may be required.
2.9. The parties acknowledge and agree that, in order to achieve the
goals set forth herein, an interim restructure of the operational aspects
of Mandarin is necessary in addition to the transfer of equity and,
accordingly, agree as follows.
3. Basic Agreement. In consideration of the mutual promises
contained in this Agreement, the parties agree to the following:
3.1. Transfer and Assignment. Subject to and governed by the terms
and conditions of this Agreement, CHPF shall purchase the majority
interests of Li in and to the equity of Mandarin and Li shall transfer and
assign such equity interests to CHPF, as follows:
a. On the First Closing Date as provided in this Agreement, Li
shall transfer and assign 28.125% of the equity of Mandarin to CHPF;
b. Simultaneous with the transfer and assignment of 28.125% of the
equity of Mandarin to CHPF by Li on the First Closing Date, CHPF shall pay
US $2,250,000 to Li;
c. The transfer of 28.125% of Li's equity interest in Mandarin
shall be accompanied by a change in the recorded ownership interests of
Mandarin to reflect CHPF's acquired equity interest; such change in
Mandarin's ownership interests shall be filed in and with the appropriate
local governmental agency or agency of the People's Republic of China, as
may be required;
d. On the Second Closing Date as provided in this Agreement, Li
shall transfer and assign an additional 28.125% of the equity of Mandarin
to CHPF;
e. Simultaneous with the transfer and assignment of the additional
28.125% of the equity of Mandarin to CHPF by Li on the Second Closing Date,
CHPF shall, at the option of Li, either (i) direct its Stock Transfer Agent
to issue 1,285,714 shares of the common stock of CHPF to Li, or (ii) pay US
$2,250,000 to Li;
f. The transfer of the additional 28.125% of Li's equity interest
in Mandarin shall be accompanied by a change in the recorded ownership
interests of Mandarin to reflect CHPF's acquired equity interest; such
change in Mandarin's ownership interests shall be filed in and with the
appropriate local governmental agency or agency of the People's Republic of
China, as may be required.
3.2. Title Passing/Closing Dates. The transfer by Li of his equity
interests in Mandarin and the consideration paid by CHPF to Li for such
transfers on the First and Second Closing Dates shall be treated as and
deemed to be separate transactions (the "First Closing" and "Second
Closing" respectively), each governed by the terms and conditions of this
Agreement.
a. Upon each such equity transfer by Li to CHPF and the respective
payments of the purchase price by CHPF to Li on each Closing Date in
accordance with Paragraph 3.1 herein, each such transaction shall be deemed
closed and CHPF shall have title to and possession of Li's right, title and
interest in and to the percentage of equity of Mandarin so transferred.
b. The First Closing Date shall occur ten (10)days after written
notice by CHPF is given to Mandarin and Li but not later than June 30,
2000. The Second Closing Date shall occur ten (10)days after written notice
by CHPF is given to Mandarin and Li but not later than September 30, 2000.
3.3. Management. Upon the consummation of the Second Closing, CHPF
shall have the right to appoint a majority of the Board of Directors of
Mandarin and to name one of said directors Chairman; in addition, CHPF
shall have the right to appoint, as its representative, the General Manager
of the Mandarin joint venture company. Li and CHPF shall vote their
respective interests in Mandarin to establish a Board of Directors having
five members, with three members appointed by CHPF. Li and CHPF shall vote
their respective interests in Mandarin to create a comprehensive joint
venture contract which shall govern the rights and obligations of the
parties.
3.4 Agency Operating Agreement. Upon the consummation of the Second
Closing, Li, as Principal, appoints CHPF Principal's exclusive Agent for
the performance of all acts required of Principal, and in the name of
Principal, for the operation and management of the business, financial and
legal affairs Mandarin. Agent accepts the appointment.
a. The agency shall begin on the date of the consummation of the
Second Closing and continue until terminated in accordance with the
provisions of this Agreement.
b. In furtherance of the agency, Agent undertakes performance of
all duties and obligations of Principal under and pursuant to the
anticipated Mandarin joint venture contract, for the purpose of developing
manufacturing and distribution of food products in the People's Republic of
China.
c. As full remuneration for Agent's services, Agent shall be
entitled to any and all profit or other remuneration to which CHPF is
entitled under the Mandarin joint venture contract.
d. Unless earlier terminated by the mutual agreement of the
parties to this Agreement, the term of this Agreement shall be until the
transfer and assignment of Li's rights to 56.25% of the equity of Mandarin
and the creation of the resultant joint venture company is approved by the
appropriate local governmental agency or agency of the People's Republic of
China, as may be required, at which time the provisions of this Paragraph
3.4 shall terminate and be of no further force or effect. In the event that
such approval is not obtained, the parties hereto agree that the agency
created hereby shall continue to exist coterminous with the Mandarin joint
venture contract.
e. This Agreement is personal to both Principal and Agent, and
neither party can assign or delegate any rights or duties arising hereunder
to a third party, whether by contract, will, or operation of law, without
the prior written consent of the other party to this agreement; any
attempt to do so shall be void.
4. Ratification of Terms of Agreement/Contingencies/Option To Void
Agreement.
4.1. This Agreement, and each and every part hereof, is subject to
and conditioned upon the written approval, adoption and ratification of the
terms and conditions of this Agreement by the Board of Directors of CHPF
and the Board of Directors and Shareholders of Mandarin.
4.2. This Agreement shall terminate and be null and void, in the
event:
a. that the written approval, adoption and ratification of the
terms and conditions of this Agreement by the Board of Directors of CHPF
and the Board of Directors and Shareholders of Mandarin are not be
obtained; or
b. that Mandarin not obtain by the First Closing Date a new,
amended or supplemental business license to enable Mandarin to continue, as
a Foreign Investment Joint Venture Company, in the business of supplying,
distributing and manufacturing, among other things, food products in the
People's Republic of China; or
c. that CHPF not receive a satisfactory due diligence report with
respect to the business, legal, operational and financial affairs of
Mandarin, as determined in the reasonable business judgment and discretion
of CHPF.
4.3. Upon such termination, neither party to this Agreement shall
have any further rights or obligations under or pursuant to this Agreement,
nor shall Li have any claim or right to any equity or other interest to or
in CHPF, nor shall CHPF have any claim or right to any equity or other
interest to or in Mandarin. The waiver rights contained in the paragraph
upon such termination shall not apply to loans or other advances of monies
which, from time to time, may have been made to Mandarin or Li by CHPF in
connection with the transfer transaction anticipated by this Agreement.
5. Representations and Warranties of Mandarin and Li.
5.1. Mandarin has in all material respects complied with and is now
in all material respects in compliance with, all laws and regulations
applicable to Mandarin or the assets subject of this Agreement or the
operation of Mandarin's business, and no material capital expenditures will
be required in order to ensure continued compliance therewith. Except for
permits or other licenses already held by Mandarin, and the approval of the
transfer and assignment provided for herein, and the business license in
China to be obtained to enable Mandarin to continue, as a Foreign
Investment Joint Venture Company to distribute and manufacture both
imported and domestic products, among other things, food products in the
People's Republic of China. No other permit, license, order or approval of
any authority is material to or necessary for the conduct of Mandarin as a
joint venture business or CHPF's participation therein.
5.2. There are no pending or threatened or anticipated proceedings
by or before any authority which involve new special assessments, special
assessment districts, bonds, taxes, condemnation action, eminent domain
actions, laws or regulations or similar matters which, if instituted, could
reasonably be expected to have a material adverse effect upon the condition
(financial or otherwise), assets, liabilities, business or other prospects
of Mandarin, the value or utility of the assets of Mandarin or the equity
transferred and assigned hereby, or the ability of Mandarin and Li to
consummate the transactions contemplated herein.
5.3. There is no fact which has not disclosed to CHPF which
reasonably could be expected to have a material adverse effect upon the
condition (financial or otherwise), assets, liabilities, business,
operations, properties or prospects of Mandarin, the value or utility of
Mandarin or the equity transferred and assigned hereby, or the ability of
Mandarin or Li to consummate the transactions contemplated herein.
5.4. Mandarin is a limited liability company organized in accordance
with the laws of the People's Republic of China and, in accordance with its
issued business license, is authorized to engage in the business of the
distribution and manufacture of, among other things, imported and domestic
food products in the People's Republic of China.
5.5. Li's interest in Mandarin has been properly issued and recorded
with the appropriate authorities in the People's Republic of China.
5.6. Li has full, complete, and absolute title to 100% of the issued
and outstanding equity interests in Mandarin, consisting of Registered
Capital in the amount of RMB 10,000,000, free of any liens, encumbrances,
or agreements of any kind.
5.7. Attached to this Agreement and made a part of it are the most
recent financial statements of Mandarin for the period ended December
31,1999. There have been no changes in Mandarin's financial condition as
set out in the balance sheet between the date of the balance sheet and the
date of this Agreement except for those changes that will normally occur in
the regular course of Mandarin's business. Except for local staff salaries,
no salary increases, dividends, distributions, payments of profit sharing
or deferred compensation have been made since the date of the financial
statement fully described above.
5.8. Mandarin has not made any extraordinary payments to Li or other
third parties other than in the ordinary course of Mandarin's business
since the date of the financial statements attached to this Agreement,
except with respect to acquisitions of other businesses by Mandarin.
5.9. From the date of this Agreement Mandarin will not consent to
any increase in any employee's salary or the hire of any new management or
executive level employee.
5.10. From the date of this Agreement, Mandarin will not elect any
other directors or appoint any other officers, except as approved by CHPF
in writing.
5.11. Within the times and in the manner prescribed by law, Mandarin
has filed all tax returns which it is required to file, has paid or
provided for all taxes shown thereon to be due an owing by it, and has paid
or provided for all deficiencies or other assessments of taxes, interest,
or penalties owed by it; no taxing authority has asserted, or will
successfully asserted, any claim for the assessment of any additional taxes
of any nature with respect to any periods covered by any such tax returns.
All taxes which are required to be withheld or collected by Mandarin have
been duly withheld or collected and, to the extent required, have been paid
to the proper taxing authority or properly segregated or deposited as
required by law. Each tax return filed by Mandarin fully and accurately
reflects its liability for taxes for such year or period and accurately
sets forth all items (to the extent required to be included or reflected in
such returns) relevant to it future liability for taxes, including the tax
bases of its properties and assets. The provisions for taxes payable
reflected in the financial statements are fully adequate and correct.
In addition, with respect to tax matters of Mandarin:
(i) No review or audit of any tax return of Mandarin is in progress
or threatened or anticipated;
(ii) No issues have been raised with Mandarin by any taxing
authority which are currently pending. No material issues have
been raised in any examination by any taxing authority with
respect to Mandarin which, by application or similar
principals, reasonably could be expected to result in a
proposed deficiency for any other period not so examined. There
are no unresolved issues or unpaid deficiencies relating to any
such examination;
(iii) Mandarin is not subject to any partnership, joint venture or
other arrangement which is treated as a partnership for tax
purposes;
6. Indemnification.
6.1. Mandarin and Li agree to indemnify and hold CHPF harmless from
and against all liability, loss, damage and other claims arising directly
or indirectly from any breach of their representations set forth in
paragraph 5 herein.
6.2. Each party to this Agreement will indemnify and hold harmless
the other party by reason of any loss, including attorneys fees, suffered
as a result of the failure of such party to satisfy and perform the terms
and conditions and obligations of this Agreement or the material breach by
such party of any of its representations and warranties contained herein.
This paragraph does not apply to the actions of others that are not within
the control of a party to which this indemnification provision applies,
insofar as the ability of such party to satisfy the terms and conditions
and obligations of this Agreement are dependent upon such actions of
others.
6.3. Satisfaction of indemnification Obligations. If a party hereto
receives notice of any claim or other commencement of any action or
proceeding with respect to it as to which the other party to this Agreement
is obligated to provide indemnification pursuant to paragraphs 6.1 or 6.2
herein , the party receiving such notice promptly shall give the other
party written notice thereof, which notice shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
6.4. In connection with any claim giving rise to indemnity hereunder
resulting from or arising out of any claim or legal proceeding by a person
who is not a party to this Agreement, the Indemnitor at its sole cost and
expense may, upon written notice to the Indemnitee, assume the defense of
any such claim or legal proceeding using counsel of its choice (subject to
the approval of the Indemnitee) if it acknowledges to the Indemnitee in
writing its obligations to indemnify Indemnitee with respect to all
elements of such claim. Indemnitee shall be entitled to participate in the
defense of any such action, with its counsel and at its own expense;
provided, however, that if Indemnitee, in its sole discretion, determines
that there exists a conflict of interest between it and the Indemnitor,
Indemnitee shall have the right to engage separate counsel, the reasonable
costs and expenses of which shall be paid by the Indemnitor, but in no
event shall the Indemnitor be liable to pay for the costs and expenses of
more than one such separate counsel. If the Indemnitor does not assume the
defense of any such action or litigation resulting therefrom, the
Indemnitee may defend against such claim or litigation, after giving notice
of same to Indemnitor, on such terms as Indemnitee may deem appropriate,
and Indemnitor shall be entitled to participate in (but not control) the
defense of such action with his counsel and at his own expense.
7. Representations and Warranties of CHPF.
7.1. CHPF presently operates a Chinese joint venture business known
as Hangzhou Meilijian Dairy Products Co., Ltd. To the best of CHPF's
knowledge, Meilijian has in all material respects complied with and is now
in all material respects in compliance with, all laws and regulations
applicable to Meilijian. Except for permits or other licenses already held
by Meilijian, to the best of CHPF's knowledge, no other permit, license,
order or approval of any authority is material to or necessary for the
conduct of Meilijian or CHPF's participation therein.
7.2. To the best of CHPF's knowledge, there is no fact which CHPF
has not disclosed to Mandarin and Li which reasonably could be expected to
have a material adverse effect upon the condition (financial or otherwise),
assets, liabilities, business, operations, properties or prospects of CHPF,
or the ability of CHPF to consummate the transactions contemplated herein.
7.3. CHPF is a corporation organized in accordance with the laws of
the State of Delaware and, in accordance with its Articles of
Incorporation, is authorized to engage in the business of holding an
interest in Mandarin. The copies of the Articles of Incorporation and By-
Laws of CHPF, as amended to date, which have been filed with the Securities
and Exchange Commission and are a matter of public record are correct and
complete.
7.4. CHPF is a corporation in good standing. All taxes currently
due, including but not limited to income, trust, franchise, sales and
excise taxes, have been paid. There are no pending actions or proceedings
to limit or impair CHPF's power to engage in business or to dissolve CHPF.
7.5. The audited financial statements of CHPF as of December 31,
1998, and 1999 have been filed with the Securities and Exchange Commission
as part of CHPF's 1999 Form 10K-SB and have been made available to Mandarin
and Li. These financial statements are complete and correct and fairly
represent the financial position of CHPF on the dates of such statements
and the results of operations for the periods covered thereby. Except as
may occur in the ordinary course of business, there have been no material
changes in CHPF's financial condition as set out in its December 31, 1999
financial statement.
7.6. There are no actions at law or equity or administrative
proceedings pending against CHPF or in which CHPF is a plaintiff,
defendant, petitioner, or respondent. CHPF does not propose to commence an
action at law or equity or an administrative proceeding in which it will be
a plaintiff or petitioner. There are no actions at law or equity or
administrative proceedings pending in which it is anticipated that CHPF
will join or be joined as a party.
7.7. The execution, delivery and performance of this Agreement
referred to in Section 3.1 hereof have been duly authorized by all
necessary corporate or other action of CHPF and each such agreement is the
valid and binding obligation of CHPF, enforceable in accordance with its
terms, except to the extent limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting creditor's rights generally
and to general principles of equity. The issuance of CHPF's common stock to
Li pursuant to the terms of this Agreement shall be duly and validly
authorized, and no further approval or authority of the stockholders or the
directors of CHPF will be required for the issuance of the common stock and
options as contemplated by this Agreement. When issued to Li, the common
stock of CHPF will be validly issued, fully paid and non-assessable, free
and clear of all liens and encumbrances.
7.8. CHPF is not in violation of its Charter or by-laws as of the
date hereof. The execution, delivery and performance of this Agreement and
the transactions contemplated hereby (i) do not require any approval or
consent of, or filing with, and governmental agency or authority in the
United States of America or otherwise which has not been obtained and which
is not in full force and effect as of the date hereof, (ii) will not
conflict with or constitute a breach or violation of the Charter or by-laws
of CHPF or of any material agreement to which CHPF or its assets is
subject, and (iii) will not result in a violation of any law or regulation
to which it or its assets is subject.
7.9. The Form 10K-SB of CHPF, filed with the Securities and Exchange
Commission on April 14, 2000, describes all material aspects of the
business of CHPF. The factual information contained therein is correct in
all material respects, the assumptions are reasonable, and the projections
are, to the best knowledge of CHPF, reasonably attainable within the
periods indicated as of March 1, 2000.
8. Securities Issued As Consideration.
8.1. A registration statement for the securities issued as
consideration for the transaction herein is not in effect. To avoid
violation of the Securities Act of 1933, as amended, CHPF may require a
written commitment from Li before delivery of the certificate or
certificates for the securities issued pursuant to Paragraph 3.1 herein.
The commitment shall be in a form prescribed by CHPF and will state that it
is the intent of Li to acquire the securities for investment only and not
with the intent of transferring or reselling same; that Li has been
informed that the securities may be "restricted" pursuant to Rule 144 of
the Securities and Exchange Commission and that any resale, transfer, or
other distribution of the securities may only be made in conformity with
Rule 144, the Securities Act of 1933, as amended, or other federal statute,
rule, or regulation. CHPF will place a legend on the face of the
certificate or certificates in accordance with this commitment and may
refuse to permit transfer of the securities unless it receives satisfactory
evidence that the transfer will not violate Rule 144, the Securities Act of
1933, as amended, or any other federal statute, rule, or regulation.
8.2. The parties acknowledge and agree that no representations or
assurances have been made or given concerning whether such securities
referenced herein are tradable or, if tradable, the price at which such may
be traded.
8.3. With respect to the securities referenced in this Agreement,
CHPF agrees to use its best efforts, within the bounds of applicable
securities laws and business judgment of CHPF, to register its securities
to facilitate the creation of a public trading market for such securities
as soon as practicable. All expenses associated with such registration
statement shall be the responsibility of CHPF, including those expenses
attributable to the participation of Li in such registration statement. Li
shall not have the right to cause CHPF to initiate and prosecute such
registration statement upon the specific demand of Li, nor should anything
contained herein be deemed to provide or create such right. Li shall
furnish to CHPF such information regarding such holder and the distribution
proposed by such holder as CHPF may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance process.
9. Notices. All notices, request, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been received one (1) day after being sent by telecopy to the fax
numbers stated below (with copy delivered by regular mail) and to the
addresses set forth in the preamble to this agreement or to such other
address as any of them shall give to the others by notice made pursuant to
this paragraph:
a. If to China Premium Food Corporation: 561-625-1413
b. If to Mandarin Fine Foods or Mr. Li: 67744671
10. Agreement Not Assignable. This Agreement may not be assigned
by any party without the written consent of the other parties.
11. Counterparts. This Agreement may be executed in several and
separate counterparts which, collectively, shall constitute the operative
Agreement among the parties.
12. Law Governing. This Agreement shall be governed by the laws of
the State of Delaware, without consideration of choice of law principles.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a written amendment executed by both
parties. The waiver by any party of a breach of any provision of this
Agreement shall not be a waiver of any subsequent breach.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.
China Premium Food Corporation
By /s/
---------------------------
Roy G. Warren, President
Mandarin Fine Foods Co.
By /s/
---------------------------
Li Zhi Yun, General Manager
By /s/
---------------------------
Li Zhi Yun (Individually)
Item 6 (a) Exhibit (4)
CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE
RIGHTS OF SERIES F CONVERTIBLE
PREFERRED STOCK, $.001 PAR VALUE PER SHARE
It is hereby certified that:
I. The name of the corporation is China Premium 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 F 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 F Convertible Preferred Stock by resolution of
the Board of Directors:
Series F Convertible Preferred Stock, $.001 par value.
1. Designation: Number of Shares. The designation of said series
of Preferred Stock shall be Series F Convertible Preferred Stock (the
"Series F Preferred Stock"). The number of shares of Series F Preferred
Stock shall be 165,000. Each share of Series F 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 F Preferred Share.
2. Dividends, Distributions and Liquidation Rights. The Holders of
outstanding shares of Series F Preferred Stock shall be entitled to
dividends and distributions (whether in cash or property or securities,
including dividends and distributions which are paid or intended to be paid
in connection with distributions of the Corporation's assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation) when declared by the Corporations' Board of Directors on the
Common Stock (as defined in Section 3(i) below) on an as converted basis,
together with payments to the holders of the Common Stock. Each share of
Series F Preferred Stock with respect to dividend payments shall be equal
in every respect to every other share of Series F Preferred Stock.
3. Conversion into Common Stock. Shares of Series F Preferred
Stock shall have the following conversion rights and obligations:
(a) Subject to the further provisions of this paragraph 3
each Holder of shares of Series F Preferred Stock shall have the right at
any time commencing after the filing of this Certificate of Designation
with the Office of the Secretary of State of Delaware, to convert such
shares into fully paid and non-assessable shares of Common Stock of the
Corporation (as defined in paragraph 3(i) below) determined in accordance
with the Conversion Price provided in paragraph 3(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 F Preferred Stock registered to the
Holder is less than $10,000, then the whole amount may be converted).
(b) The number of shares of Common Stock issuable upon
conversion of each share of Series F Preferred Stock shall equal the Stated
Value per share divided by the Conversion Price. The Conversion Price shall
be equal to $.50, subject to adjustment as described herein.
(c) The Holder of any certificate for shares of Series F
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, (but only if such Transfer
Agent is appointed by the Company as transfer agent for the Series F
Preferred Stock) 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 F Preferred Stock
(together with the Series F 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 F 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. In the case of any Series F
Preferred Stock which is converted in part only the Holder of shares of
Series F 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 F Preferred
Stock. Nothing herein shall be construed to give any Holder of shares of
Series F 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 3 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 3(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 F Preferred Stock so
converted.
The Corporation shall not be required, in connection with any
conversion of Series F Preferred Stock, to issue a fraction of a share of
its Common 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 F 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 F 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. The Holder may allocate which of
the equity of the Corporation deemed beneficially owned by the Holder shall
be included in the 9.9% amount described above and which shall be allocated
to the excess above 9.99%.
(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) split or
subdivide the outstanding Common Stock, (B) combine the outstanding Common
Stock into a smaller number of shares, or (C) 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 F 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 F
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 3(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 F Preferred
Stock shall have terminated, as part of such merger lawful provision shall
be made so that Holders of Series F Preferred Stock shall thereafter have
the right to convert each share of Series F 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 F 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 3. The foregoing provisions of this paragraph 3(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 F Preferred Stock shall thereafter have the right to
convert each share of the Series F 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 F Preferred Stock is required to be adjusted as provided in this
paragraph 3, 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 F Preferred Stock and the Common Stock; and the
Corporation shall mail to each Holder of record of Series F 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 F Preferred Stock and for the Common Stock and to the Holders of
record of the Series F Preferred Stock.
(h) So long as any shares of Series F Preferred Stock shall remain
outstanding and the Holders thereof shall have the right to convert the
same in accordance with provisions of this paragraph 3 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 3 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 F Preferred Stock shall at any
time become convertible pursuant to the provisions of this paragraph 3.
(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 F Preferred
Stock, but all transfer taxes and income taxes that may be payable in
respect of any change of ownership of Series F 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 F Preferred Stock as provided herein, the Corporation may not 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 F Preferred Stock shall
have been issued and the Corporation posts a surety bond for the benefit of
such Holder in the amount of 125% of the Stated Value of the Series F
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 3(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 F 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 F 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.
4. Voting Rights. The shares of Series F Preferred Stock shall not
have voting rights.
5. Event of Default. Upon the occurrence of any of the following
events of default ("Event of Default"), after the applicable period to cure
the Event of Default, the Holder shall have the option to require the
Corporation to redeem the Series F Preferred Stock held by such Holder by
the immediate payment to the Holder by the Corporation of a sum of money
equal to the Stated Value of the Series F Preferred Stock held by the
Holder multiplied by 125%:
(a) The Corporation fails to pay any sum of money due to the
Holder from the Company (excluding dividends) 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 F 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.
6. Status of Converted or Redeemed Stock. In case any shares of
Series F 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 F Preferred Stock.
CHINA PREMIUM FOOD CORPORATION
Dated: April 6, 2000
By:
---------------------------
Roy G. Warren, President
EXHIBIT A
---------
NOTICE OF CONVERSION
(To Be Executed By the Registered Holder in Order to Convert the Series F
Convertible Preferred Stock of China Premium Food Corporation)
The undersigned hereby irrevocably elects to convert $ of the
Stated Value of the above Series F Convertible Preferred Stock into shares
of Common Stock of China Premium Food Corporation (the "Corporation")
according to the conditions hereof, as of the date written below.
Date of Conversion:
-----------------------------
Applicable Conversion Price Per Share:
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 March
31, 2000 unaudited financial statements of the Company and is qualified in its
entirety by such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,394
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 151,804
<PP&E> 130,573
<DEPRECIATION> 45,586
<TOTAL-ASSETS> 1,898,131
<CURRENT-LIABILITIES> 405,108
<BONDS> 0
0
2,567,713
<COMMON> 10,684
<OTHER-SE> 11,887,959
<TOTAL-LIABILITY-AND-EQUITY> 1,898,139
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 685,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,909
<INCOME-PRETAX> (737,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (369,764)
<CHANGES> 0
<NET-INCOME> (1,107,188)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
