U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________to________________
Commission File Number: 000-27511
PEREGRINE INDUSTRIES, INC.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0611007
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(IRS Employer Identification No.)
730 S. Military Trail, Deerfield Beach, Florida 33442
(Address of principal executive offices)
(954) 725-8041
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(Issuer's telephone number, including area
code:)
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 (__).
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of August 21, 2000 the
registrant had 14,270,000 shares of common stock issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
PEREGRINE INDUSTRIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
June 30, 2000 1999
(unaudited) (audited)
----------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 123,935 $ 46,980
Restricted cash 466,940 441,809
Accounts receivable, net of allowance for doubtful accounts of
$20,949 in 2000 and $230,370 in 2000 758,775 594,912
Inventory 2,399,257 1,941,574
Prepaid and other current assets 66,966 68,237
Debt issue costs 15,048 14,500
Federal income tax deposits -- 3,570
Deferred tax asset 82,306 94,387
Income tax receivable -- 189,062
Notes receivable to stockholder and director 11,410 --
----------- -----------
Total current assets 3,924,637 3,395,031
Property and equipment, net 2,823,063 2,987,555
Deposits and other 28,446 87,312
Debt issue costs 69,484 87,076
Deferred tax asset, net 325,149 281,132
----------- -----------
Total assets $ 7,170,779 $ 6,838,106
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ -- $ 102,464
Accounts payable 2,485,277 2,292,634
Accrued expenses and other payables 143,111 107,174
Line of credit 1,000,000 818,000
Industrial development bonds 2,165,000 2,386,250
Bank term loan 22,327 88,384
Notes payable and capital leases 13,008 8,371
Notes payable to stockholder and director 37,500 14,000
----------- -----------
Total current liabilities 5,866,223 5,817,277
Warranty reserve 50,043 53,636
Notes payable and capital leases 17,690 28,547
----------- -----------
Total liabilities 5,933,956 5,899,460
Commitments and contingency (Note 5)
Stockholders' equity:
Preferred stock - $.0001 par value; 5,000,000 shares authorized,
200,000 shares designated as Series A, 5% cumulative,
convertible, 133,663 shares issued and outstanding 13 13
Common stock - $.0001 par value; 30,000,000 shares authorized,
14,270,000 issued and outstanding 1,427 1,376
Additional paid-in capital 2,007,169 1,629,282
Retained earnings (725,179) (636,118)
Accumulated other comprehensive lossent (46,607) (55,907)
----------- -----------
Total stockholders' equity 1,236,823 938,646
----------- -----------
Total liabilities and stockholders' equity $ 7,170,779 $ 6,838,106
=========== ===========
</TABLE>
<PAGE>
PEREGRINE INDUSTRIES, INC.
Consolidated Statements of Loss and Comprehensive Loss
For the three months and nine months ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
(Unaudited) THREE MONTHS ENDED JUNE 30 NINE MONTHS ENDED JUNE 30
------------------------------- --------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 1,802,863 $ 1,741,614 $ 7,094,034 $ 5,460,039
Cost of sales 1,575,516 1,724,853 5,343,331 4,385,623
------------ ------------ ------------ ------------
Gross Profit 227,347 16,761 1,750,703 1,074,416
Operating expenses:
General and administrative 380,856 455,671 1,223,171 1,137,888
Pre-operating costs of new product lines -- 13,585 -- 284,256
Research & development 10,122 79,308 122,669 227,428
Depreciation and amortization 108,908 102,421 356,538 139,998
------------ ------------ ------------ ------------
Total operating expenses 499,886 650,985 1,702,378 1,789,570
------------ ------------ ------------ ------------
(Loss) income from operations (272,539) (634,224) 48,325 (715,154)
Other income (expenses):
Interest income 6,839 5,224 16,677 12,868
Interest expense (55,341) (56,077) (179,487) (134,401)
Other 7,000 7,000
Loss on foreign currency transactions (17,522) -- (17,522) --
------------ ------------ ------------ ------------
Loss before provision for income taxes (338,563) (678,077) (132,007) (829,687)
Income tax benefit 113,473 143,214 42,947 191,287
------------ ------------ ------------ ------------
Net loss $ (225,090) $ (534,863) $ (89,060) $ (638,400)
============ ============ ============ ============
Other comprehesive loss:
Foreign currency translation adjustment,
net of income tax $ 9,300 $ $ 9,300 $ 474
------------ ------------ ------------ ------------
Comprehensive loss $ (215,790) $ (534,863) $ (79,760) $ (637,926)
============ ============ ============ ============
Basic net loss per share:
Net loss $ (225,090) $ (534,863) $ (89,060) $ (638,400)
Weighted average shares outstanding 14,270,000 13,760,000 14,055,568 13,760,000
Basic net loss per share $ (0.016) $ (0.039) $ (0.006) $ (0.046)
</TABLE>
<PAGE>
PEREGRINE INDUSTRIES, INC.
Consolidated Statements of Cash Flow
For the nine months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30
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2000 1999
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Cash flows from operating activities:
<S> <C> <C>
Net income $ (89,060) $ (638,400)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Accrued interest on stockholder notes 363 --
Deferred tax benefit (provision) (31,936) (165,487)
Depreciation and amortization 356,538 139,998
Bad debt provision -- 11,355
Foreign currency translation adjustment 9,300 474
Warranty reserve (3,593) (35,764)
Stock options 17,938 40,250
Debt issue costs 17,044 26,527
Changes in operating assets and liabilities: --
Restricted cash (25,131) (465,828)
Accounts receivable (163,863) 21,269
Inventory (457,683) (49,569)
Prepaid and other current assets 1,270 (48,910)
Income tax receivable 189,062 --
Deposits and other 58,866 56,696
Accounts payable 192,643 804,770
Accrued expenses and other payables 35,574 101,240
Federal tax deposits 3,570 110,426
----------- -----------
Net cash provided by (used in) operating activities 110,902 (117,480)
Cash flow from investing activities:
Expenditures for property and equipment (192,046) (2,623,263)
----------- -----------
Net cash used in investing activities (192,046) (2,623,263)
Cash flows from financing activities:
Bank overdraft (102,464) (24,273)
(Repayments) proceeds on line of credit 182,000 266,000
Proceeds from long-term debt -- 1,500,000
Repayment of long-term debt (293,527) (1,342,461)
Distribution to stockholders -- --
Proceeds from sale of common stock 360,000 --
Proceeds from Industrial Development Bonds -- 2,354,662
Advances from stockholders 12,090
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Net cash provided by financing activities 158,099 2,753,928
Net increase in cash and cash equivalents 76,955 13,185
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Cash and cash equivalents, beginning of year 46,980 45,515
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Cash and cash equivalents, end of year $ 123,935 $ 58,700
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</TABLE>
<PAGE>
PEREGRINE INDUSTRIES, INC
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Note 1:
The accompanying unaudited consolidated financial statements of Peregrine
Industries, Inc. and its subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 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. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Operating
results for the three-month and nine month periods ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2000. These financial statements and notes should be read in
conjunction with the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1999.
Note 2: Net loss per share is calculated using the weighted average number of
common and common shares outstanding during the periods. Diluted net income per
share is calculated by dividing net income by the weighted average number of
common and potential common shares outstanding during the period. Potential
common shares consist of the dilutive effect of outstanding options and warrants
calculated by the treasury stock method. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
Statement of Financial Accounting Standards No. 128 requirements. Due to the net
loss, preferred stock, stock options and warrants were not included in the fully
diluted earnings per share calculation due to their anti-dilutive effect.
Note 3: Inventories are valued at the lower of cost or net realizable
value with cost determined on a first in, first out (FIFO) method and consist of
the following:
PLACE TABLE HERE!
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
------------- ------------------
<S> <C> <C>
Raw materials $2,018,637 $1,796,827
Work in process 60,000 90,750
Finished goods 385,624 119,001
---------- ----------
2,464,261 2,006,578
Reserve for obsolete and slow moving inventory 65,004 65,004
---------- ----------
$2,399,257 $1,941,574
========== ==========
</TABLE>
Note 4: A $1,000,000 line of credit with a bank expired on May 4, 2000. The
commercial lender renewed the line through October 04, 2000. The balance of that
line was $1,000,000 at June 30, 2000 and as of the date of this report.
Additionally, the Company is in violation of certain of its covenants associated
with this line of credit. As a result of its covenant violations, such debt
obligations could be called on demand. However, it is uncertain as to whether
the Company will be able to repay the debt obligations on demand, refinance it
with its current lenders or obtain other sources of financing. The inability of
the Company to repay or refinance its debt obligations could have a material
adverse impact on the Company's financial position.
<PAGE>
Note 5. Industrial Development Bond and Bank Term Loan
The Company is currently in violation of certain of its covenants associated
with its Industrial Development Bond and Bank Term Loan. Accordingly, such
obligations have been reclassified into current liabilities. As a result of its
covenant violations, such debt obligations could be called on demand. However,
it is uncertain as to whether the Company will be able to repay the debt
obligations on demand, refinance it with its current lenders or obtain other
sources of financing. The inability of the Company to repay or refinance its
debt obligations could have a material adverse impact on the Company's financial
position.
Note 6: CONCENTRATION OF CREDIT RISKS
The Company's three largest customers accounted for only 27%, 18% and 14%,
respectively, of sales recorded during this quarter. Additionally, accounts
receivable insurance coverage is being continually expanded.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR FINANCIAL CONDITION AND RESULTS OF
OPERATION
Three months ended June 30, 2000 as Compared to three months ended June 20, 1999
Net sales increased approximately 3.5% for the third quarter of fiscal
2000 as compared to the third quarter of fiscal 1999. Management of the Company
believes this increase is primarily attributable to continued improvements in
product efficiency consistent with product operating cost (primarily due to the
Company's new parallel flow coils and brazed plate heat exchanges) versus other
energy sources and the Company's increased penetration of the southwestern U.S.
market, as well as the price increase implemented at the beginning of fiscal
2000 as discussed below.
It is our expectation that the fourth quarter will be among the most
profitable in our companies history, as it will reflect, for the first time, the
production of both air conditioners and pool heaters simultaneously.
The cost of sales at 87.4% of net sales for the third quarter of fiscal
2000 versus 99.0% of net sales for the third quarter of the previous year are
due to increased manufacturing efficiences of the Alcool subsidiary. This
increase was partially offset by problems with one of our suppliers who
furnished us with defective plastic material.
Gross profit increased approximately 123% during the third quarter of
fiscal 2000 as compared to the third quarter of fiscal 1999 as a result of
increased manufacturing efficiencies and throughout at the Alcool subsidiary.
Total operating expenses remained relatively constant during the third
quarter of fiscal 2000 as compared to the third quarter of fiscal 1999. Selling,
general and administrative expenses decreased approximately 14.2% during the
third quarter of fiscal 2000 versus the third quarter of fiscal 1999 due to
decreases in advertising and sales promotion expenses for launching new product
lines in 1999.
Pre-operating costs for new product during the nine months ended June
30, 1999 represented costs associated with the start-up of the Company's Alcool
facility in Alabama; the Company did not incur similar costs during the
comparable period in fiscal 2000.
Research and development expenses decreased during the third quarter of
fiscal 2000 as compared to the third quarter of fiscal 1999 as a result of the
substantial completion of development of Company's new parallel flow coils and
brazed plate heat exchanges.
The increase in depreciation and amortization for the third quarter of
fiscal 2000 as compared to the third quarter of fiscal 1999 reflects the placing
in service of the production equipment at the Alcool plant.
The Company reported net loss of $225,090 for the three months ended
June 30, 2000 as compared to a net loss of $534,863 during the comparable three
month period in fiscal 1999, and comprehensive loss of $215,790 and a
comprehensive loss of $534,863 during those periods respectively, primarily as a
result of increased sales together with a decrease of operating expenses in the
during the 2000 period.
<PAGE>
Nine Months Ended June 30, 2000 as Compared to Nine Months Ended June 30, 1999
Net sales increased approximately 29.9% for the nine months ended June
30, 2000 as compared to the nine months ended June 30, 1999. Effective September
1, 1999, the Company instituted a weighted average price increase of 13% on its
pool heaters in order to both recover its research and development expenses on
certain propriety components as discussed above as well as its assumption of
certain warranty service functions previously handled by certain customers of
the Company. The increase in net sales is attributable to this price increase,
as well as continued improvements in product efficiency consistent with product
operating cost (primarily due to the Company's new parallel flow coils and
brazed plate heat exchanges), and the growing popularity of heat pumps versus
other energy sources and the Company's increased penetration of the southwestern
U.S. market.
The cost of sales of 75.3% of net sales for the nine months ended June
30, 2000 decreased versus 80.3% of net sales for the nine months ended June 30,
1999. Gross profit correspondingly increased approximately 62.9% during the nine
months ended June 30, 2000 as compared to the nine months ended June 30, 2000.
The decrease in cost of sales and increase in gross margin are due to higher
manufacturing throughput throughout the Alcool subsidiary, along with
implementing a price increase to our customers.
Total operating expenses decreased approximately 4.9% for the nine
months ended June30, 2000 versus the nine months ended June 30, 1999. Selling,
general and administrative expenses increased approximately 7.5% during the nine
months ended June 30, 2000 versus the nine months ended June 30, 1999 as a
result of increases in personnel and personnel costs in order to support the
Company's growth.
Research and development expenses decreased during the nine months
ended June 30, 2000 as compared to the nine months ended June30, 1999 as a
result of the completion of development of certain new components as discussed
above.
Depreciation and amortization increased approximately 154% during the
nine months ended June 30, 2000 as compared to the nine months ended June 30,
1999 as a result of the placing in service of the production equipment at the
Alcool plant.
Interest expense increased approximately 33.6% for the nine months
ended June 30, 2000 versus the comparable period in fiscal 1999 as a result of
costs associated with the financing of manufacturing equipment at the Alcool
plant, and a full utilization of the Company's working capital line at a
commercial lender in conjunction with an increase in sales during the 2000
period.
The Company reported net loss of $89,060 for the nine months ended June
30, 2000 as compared to a net loss of $638,400 during the comparable nine month
period in fiscal 1999, and comprehensive loss of $79,760 and a comprehensive
loss of $637,926 during those periods respectively primarily as a result of
increased sales during the 2000 period and better utilization and manufacturing
efficiences at the Alcool Subsidiary.
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $110,902 for the
nine months ended June 30, 2000 as compared to $117,480 used by operations for
the same period last year. This is principally due to lower losses and increased
net sales over the previous period. Net cash used in investing activities
declined from $2,623,263 for the nine months ended June 30, 1999 to $192,046 for
the same period this year as a result of completing facilitation of the Alcool
plant. Net cash provided by financing activities of $158,099 compares to
$2,753,928 for the same period last year, again as a result of completing the
facilitation of the Alcool plant, as well as (1) increases in the credit line
along with deceases in the cash balance were used to pay down term debt,
including the industrial bond financing for Alcool, and (2), $360,000 was
generated in this nine months period from the sale of common stock.
The accounts receivable increase of $163,863 since September 30, 1999 generally
follows the increase in sales volume. A large international insurance company
insures approximately 75% of the balances.
Inventory increased $457,683 or 23.6% since September 30, 1999, which is
consistent with the increase in sales volume increase because of better turnover
normally associated with sales increases.
Before re-classifying long term debt to current liabilities as described
elsewhere, the working capital deficit of $97,000 at June 30, 2000 improved
compared to the working capital deficit of $373,000 at September 30, 1999. This
is principally due to the significant increase in net sales, and thus
corresponding increases in accounts receivable and inventory.
The Company is in violation of certain of its covenants associated with the
$1,000,000 line of credit in addition to the Industrial Revenue Bond. As a
result of its covenant violations, such debt obligations could be called on
demand. However, it is uncertain as to whether the Company will be able to repay
the debt obligations on demand, refinance it with its current lenders or obtain
other sources of financing. The inability of the Company to repay or refinance
its debt obligations could have a material adverse impact on the Company's
financial position. Management is currently in discussions with the current and
other potential lenders.
Net loans to directors/stockholders amounted to $26,090 at June 30, 2000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
In January 2000, the Company completed a private placement of its securities to
a group of eight accredited investors, including the Company's CEO and its
outside director in a transaction exempt from registration under the Securities
Act of 1933, as amended, pursuant to an exemption under Section 4(2) of said
act. Pursuant to the terms of the private placement agreement, the Company
issued 400,000 shares of its common stock and three year warrants to purchase
200,000 shares of the Company's common stock at $1.25 per share. The Company
received $300,000 in gross proceeds in this offering, which is used for general
working capital. The Company granted the purchasers in this offering certain
registration rights.
In January 2000 the Company also issued an aggregate of 110,00 shares of its
common stock , and a warrant to purchase an additional 5,000 shares at $1.25 per
share to two entities who were accredited investors as satisfaction of amounts
due those entities by the Company. These transactions were exempt from
registration under the Securities Act of 1933 as amended, in reliance on Section
4(2) of said act. The Company also granted these investors registration rights.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized.
Peregrine Industries, Inc.
(Registrant)
/s/ Merrill A. Yarbrough
---------------------------------
Merrill A. Yarbrough
Chief Executive Officer
Dated: August 21, 2000
