U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 000-27511
PEREGRINE INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Florida
(State or other jurisdiction of incorporation or organization)
65-0611007
(IRS Employer Identification No.)
730 S. Military Trail, Deerfield Beach, Florida 33442
(Address of principal executive offices)
(954) 725-8041
(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 February 4, 2000 the
registrant had 14,098,333 shares of common stock issued and outstanding.
<PAGE>
PEREGRINE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 1998
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 26,510 $ 46,980
Restricted cash 456,718 441,809
Accounts receivable, net 332,667 594,912
Inventory 1,986,399 1,941,574
Prepaid and other current assets 14,762 68,237
Debt issue costs 14,500 14,500
Federal Income tax deposits 3,570 3,570
Deferred tax asset 96,574 94,387
Income tax receivable 189,062 189,062
-------------- ----------------
Total current assets 3,117,566 3,395,031
Property & equipment, net 2,886,957 2,987,566
Deposits and other 105,175 87,312
Debt issue cost 83,314 87,076
Deferred tax asset 239,867 281,132
-------------- ----------------
Total assets $ 6,435,056 $ 6,838,106
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 77,137 $ 102,464
Accounts Payable 1,702,575 2,292,634
Accrued expenses and other payables 123,415 107,174
Line of Credit 979,000 818,000
Industrial Bond Development 302,498 324,583
Bank termndel 54,567 88,384
Note payable and capital lease 8,437 8,371
Notes payable to stockholder and director 13,373 14,000
-------------- ----------------
Total current liabilities 3,261,003 3,756,610
Warranty reserve 45,950 53,636
Notes payable and capital leases 26,359 28,547
Industrial development bond 2,010,002 2,061,667
-------------- ----------------
Total liabilities $ 5,343,314 $ 5,899,460
============== ================
Preferred stock-$.0001 par value; 5,000,000 13 13
shares authorized; 200,000 shares designated
as Series A, 5% cumulative, convertible, 133,663
shares issued and outstanding
Common stock-$.0001 par value, 30,000,000 1,386 1,376
shares authorized 13,760,000 shares issued and
outstanding
Additional paid-in capital 1,710,084 1,629,282
Retained earnings (636,118) (636,118)
Current profit/(Loss) 72,286
Accumulated other comprehensive loss (56,907) (56,907)
-------------- ----------------
Total stockholders' equity 1,091,742 938,646
-------------- ----------------
Total liabilities and stockholder's equity $ 6,435,056 $ 6,838,106
============== ================
</TABLE>
1
<PAGE>
PEREGRINE INDUSTRIES, INC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998
<S> <C> <C>
Net sales 2,631,519 1,710,452
Cost of sales 1,841,937 1,215,541
---------- ----------
Gross profit 789,582 494,911
Operating expenses:
General and administrative total 408,631 358,472
Pre-operating cost of new product lines 109,937
Provision for doubtful accounts total 2,592
Research and development total 83,426 80,769
Depreciation and amortization total 122,777 18,789
---------- ----------
Total operating expenses 617,425 567,967
Income/(loss) from operations 172,156 (73,056)
Other income/(expenses)
Interest income 4,809 3,687
Interest expense (65,592) (29,307)
Other (60,783) (25,620)
---------- ----------
Income/(loss) before tax income tax provisions 111,374 (98,676)
---------- ----------
Income tax provision/benefit 39,088 38,300
========== ==========
Foreign currency translation Total 0 3,792
Comprehensive Income 72,286 (56,584)
========== ==========
Basic net income per share:
Net income $ 72,286 $ (56,584)
Weighted average common shares
outstanding 13,769,066 13,760,000
----------- -----------
Basic net income per share 0.0052 $ (0.0041)
-----------
Diluted net income per share:
Weighted average common shares
outstanding 13,769,066 13,769,066
Convertible preferred shares 133,663 -0-
Preferred stock dividends 41,776 -0-
Warrants 150,000 -0-
Stock Options 87,334 -0-
------ -----------
Weighted average common and
potential common shares outstanding 14,181,833 13,760,000
---------- -----------
Net income $72,286 $ (56,594)
------ -----------
Diluted net income per share: 0.005 (0.004)
===== =======
</TABLE>
2
<PAGE>
PEREGRINE INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income 72,286 (60,376)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred tax benefit (42,900)
Depreciation and amortization 122,777 18,789
Outstanding stock options 5,812
Foreign currency translation adjustment 3,792
Warranty reserve (7,686) 5,661
Changes in operating assets and liabilities:
Restricted cash (13,909)
Accounts receivable 262,255 189,940
Inventory (44,825) 189,594
Prepaid and other current assets 53,475 (12,681)
Deposits (17,863) 92,336
Debt issue cost 3,762
Deferred tax asset 39,087
Accounts payable (590,059) (137,346)
Accrued expenses and other payables 16,240 (45,223)
------
Income taxes payable (20,663)
--------
Net cash provided by (used in) operating activities (98,648) 180,923
--------
Cash flow from investing activities:
Expenditures for property and equipment (22,179) (1,270,488)
-------- -----------
Net cash used in investing activities (22,179) (1,270,488)
-------- -----------
Cash flows from financing activities:
Bank overdraft (25,327) 9,853
Proceeds from equipment term loan 1,500,000
Repayment of equipment term loan (33,817) (25,940)
Payments on notes payable to shareholder and director (627)
Payments on note payable and capital leases (2,122)
Payments on Industrial Development Bonds (73,750)
Unamortized Industrial Development Bond Cost
Borrowings on line of credit, net 161,000 (416,000)
---------
Proceeds from sale of common stock 75,000
------
Net cash provided by financing activities 100,357 1,067,913
------- ---------
Net increase in cash and cash equivalents (20,470) (21,652)
Cash and cash equivalents, beginning of quarter 46,980 45,515
------
Cash and cash equivalents, end of quarter 26,510 23,863
====== ======
</TABLE>
3
<PAGE>
PEREGRINE INDUSTRIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. This information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair statement of results for
the periods presented have been included. The results for the period ended
December 31, 1999 are not necessarily indicative of results to be expected
for the entire year. These financial statements, notes and analyses should
be read in conjunction with the Registrant's audited financial statements
for the year ended September 30, 1999.
2. Net income (loss) per share is calculated using the weighted average number
of common and common shares outstanding during the periods presented.
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:
December 31 September 30
1999 1999
---- ----
Raw Material $1,848,614 $1,796,827
Work in progress 80,000 90,750
Finished goods 122,789 119,001
---------- ----------
2,051,403 2,006,578
Reserve for obsolete and slow
moving inventory 65,004 65,004
---------- ----------
$1,986,399 $1,941,574
========== ==========
4. A $1,000,000 line of credit with a bank expires in March 2000. The balance
of that line was $979,000 at December 31, 1999.
4
<PAGE>
5. Net (Loss) Income Per Common Share and Common Equivalent Share:
The calculation of basic and diluted net (loss) income per share for the
quarters ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Basic net income per share:
Net income $ 72,286 $ (56,584)
Weighted average common shares
outstanding 13,769,066 13,760,000
----------- -----------
Basic net income per share 0.0052 $ (0.0041)
-----------
Diluted net income per share:
Weighted average common shares
outstanding 13,769,066 13,769,066
Convertible preferred shares 133,663 -0-
Preferred stock dividends 41,776 -0-
Warrants 150,000 -0-
Stock Options 87,334 -0-
----------- -----------
Weighted average common and
potential common shares outstanding 14,181,833 13,760,000
----------- -----------
Net income $ 72,286 $ (56,594)
----------- -----------
Diluted net income per share: 0.005 (0.004)
===== =======
</TABLE>
CONCENTRATION OF CREDIT RISKS
The restructuring of distribution network and penetration into the southwest
U.S. market reduced the company's historical dependency on a limited number of
customers. The three largest customers accounted for only 32, 21 and 21%,
respectively, of sales recorded during this quarter. Additionally, accounts
receivable insurance coverage is being continually expanded.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Sales
Sales for the three month period ended December 31, 1999 increased
approximately 54% from the comparable period in 1998. The increase in sales is
primarily attributable to increased
5
<PAGE>
sales of pool heaters and a weighted average price increase of 13% on pool
heaters beginning on September 1, 1999. Management believes the increase in pool
heater sales primarily results from technology improvements in the products,
including the incorporation of the Company's parallel flow coils and brazed
plate heat exchangers.
The Company implemented the price increase on pool heaters to partially
recover the research and development costs invested during fiscal 1999,
primarily related to the development of the parallel flow coils at the Company's
Alabama plant.
The Company continues to refine the manufacturing process of the
parallel flow coils. Currently this proprietary technology is only incorporated
into the Company's products. In furtherance of the Company's business strategy,
during the third quarter of fiscal 2000 management believes it will begin sales
of these component products to third party manufacturers.
During fiscal 1999, the Company formed a wholly-owned foreign sales
corporation, Peregrine Global, Inc., to take advantage of certain income tax
considerations. For the three months ended September 30, 1999, the Company
recorded export sales through this subsidiary of approximately $564,000,
resulting in commissions to the subsidiary of approximately $35,400. These
results are included in the sales for the three months ended December 31, 1999.
There were no comparable sales in the three months ended December 31, 1998.
Gross Profit
Gross profit remained relatively consistent for the three months ended
December 31, 1999 versus December 31, 1998. The gross profit on sales of pool
heaters during the three months ended December 31, 1999 increased approximately
3%; however, as a result of the absorption of costs related to unused
manufacturing capacity at the Company's Alabama plant gross profit as a
percentage of sales remained constant at approximately 30%. As discussed above,
management anticipates the Company will begin utilizing this excess
manufacturing capacity during the third quarter of fiscal 2000.
Operating Expenses
General and administrative expenses increased approximately 14% for the
three months ended December 31, 1999 versus the comparable period in fiscal
1999. The company invested approximately $110,000 during the three months ended
December 31, 1998 for pre-opening costs of new product lines There were no
comparable expanses during the three months ended December 31, 1999 as the
Company's Alabama plant began manufacturing products during the later part of
fiscal 1999. Depreciation and amortization increased approximately $104,000, or
approximately 553%, for the three months ended December 31, 1999 versus the
comparable quarter in fiscal 1999 as a result of the expansion of the Company's
manufacturing operations in fiscal 1999 through the opening of its Alabama
plant.
Other Income (Expense)
6
<PAGE>
Interest expense increased approximately $36,300, or approximately 124%
during the quarter ended December 31, 1999 from the comparable quarter in fiscal
1999 as a result of costs associated with the Company's Alabama plant.
Liquidity and Capital Resources
Net cash used in operating activities for the three months ended
December 31, 1999 was approximately $98,700 compared to net cash provided by
operating activities of approximately $181,000 for the comparable period in
fiscal 1999. This decrease was primarily attributable to increases in accounts
payable. Net cash used in investing activities for the quarter ended December
31, 1999 was approximately $22,200 versus approximately $1,270,000 for the
comparable quarter in fiscal 1999. This decrease was primarily the result of
non-recurring facilitation of Alcool plant. Net cash provided by financing
activities decreased from approximately $1,068,000 for the three months ended
December 31, 1998 to approximately $100,000 for the three months ended December
31, 1999. This was primarily attributable to not repeating term loan funded
quarter ended December 31, 1998.
Accounts payable reductions on December 31, 1999 from September 30,
1999 are primarily the result of improved operational cash flows and increases
in the number of the Company's customers who take advantage of early payment
discounts offered by the Company.
Inventory levels at December 31, 1999 remained relatively constant from
September 30, 1999. During fiscal 1999 the Company established a reserve for
slow moving inventory as a result of improvements during the year in product
component technology. At September 30, 1999, this reserve was $65,000.
Management believes this reserve is sufficient and did not increase it at
December 31, 1999.
While the Company has established a warranty reserve, field failures of
its products historically have not been significant. However, the introduction
of new components on new products can increase the number of field failures
despite extensive pre-introduction testing. During the later part of fiscal 1999
the Company introduced several new products and components including its
parallel flow coil. Warranty credits for the three months ended December 1999
were approximately 2.5% of sales versus approximately 0.07% of sales for the
three months ended December 31, 1998. Management believes its established
warranty reserve is sufficient in view of its historical warranty expenses.
The Company's working capital position increased from $(361,579) at
September 30, 1999 to $(143,437) at December 31, 1999. The Company's sources of
working capital include borrowings under its credit facility and accounts
receivable. Currently, the majority of accounts receivable are paid within
fifteen (15) days of the invoice.
The Company's $1,000,000 credit line with a commercial bank expires on
March 4, 2000. At December 31, 1999 the amount outstanding under this credit
line was approximately $979,000. While the Company reasonably believes the
credit facility will be renewed for an additional 12 month period, as of the
date hereof it has not been renewed.
During the three months ended December 31, 1999 the Company raised
approximately $75,000 in working capital through the sale of its securities. See
II, Item 2.
7
<PAGE>
Year 2000 Compliance
Since January 1, 2000 we have experienced no disruptions in our systems
or those of third parties, or other computer related problems as a result of
processing dates beyond 1999. However, we cannot say with any certainty that we
will not experience any Year 2000 problems in the future. For example, software
programs may fail to recognize February 29, 2000 as a leap year date asa result
of an exception to the calculation of leap years that will occur in the year
2000 and occurs only once every 400 years. This problem could result in
miscalculations, data corruption, system failures or disruptions of operations.
Because we integrate third-party software to provide some of the functions of
our services, residual Year 2000 problems affecting this software could cause
our systems to fail. If residual Year 200 problems cause the failure of any of
the technology, software or systems necessary to provide our services or operate
our business, we could lose customers, suffer significant disruptions in our
business, lose revenues or incur substantial liabilities and expenses. We are
unable to predict at this time what effect, if any, any residual Year 2000
issues may have upon our company.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
In December 1999 and January 2000 the Company sold an aggregate of
338,333 shares of its common stock at a purchase price of $.75 per share to a
group of accredited investors with whom it had pre-existing relationships,
including a member of the Company's board of directors, in a private transaction
exempt from registration under the Securities Act of 1933 in reliance on Section
4(2) of the Act, and Rule 506 of Regulation D promulgated thereunder. Purchasers
of these shares were granted three year piggy-back registration rights covering
the shares so purchased. These sales resulted in aggregate gross proceeds to the
Company of $253,750, and the Company paid no underwriting discounts or
commissions on the sale of these securities. These funds are being used by the
Company for general working capital.
The purchasers of these shares also received three year warrants to
purchase an additional one share for each two shares purchased. These warrants
contain customary anti-dilution provisions in the event of a stock split, stock
dividend or recapitalization, they are freely transferable (subject to
restrictions under federal and state securities laws) and the holders were
granted three year piggy-back registration rights covering the shares of common
stock issuable upon exercise of the warrants.
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.
1. None.
2. No reports on For 8-K were filed during the quarter for
which this report is filed.
9
<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)
Dated: February 18, 2000. /s/ MERRILL A. YARBROUGH
-----------------------------
Merrill A. Yarbrough
President
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