EX-99.1 2 ex99_1.txt EXHIBIT 99.1 PEREGRINE ENTERPRISES, INC. FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 WITH REPORT OF INDEPENDENT AUDITORS PEREGRINE ENTERPRISES, INC. FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 TABLE OF CONTENTS Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . 1 Audited Financial Statements: Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 3 Statements of Changes in Stockholder's Equity . . . . . . . . . . . . . . 4 Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 6 REPORT OF INDEPENDENT AUDITORS To the Stockholder of Peregrine Enterprises, Inc. We have audited the accompanying balance sheets of Peregrine Enterprises, Inc. as of December 31, 2004 and 2003, and the related statements of operations, changes in stockholder's equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Peregrine Enterprises, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Whitley Penn Whitley Penn Dallas, Texas January 21, 2005
PEREGRINE ENTERPRISES, INC. BALANCE SHEETS DECEMBER 31, 2004 2003 ---------- ---------- ASSETS Current assets: Cash $ 14,490 $ 14,490 Accounts receivable: Trade 7,660 10,592 Other - 54,531 Inventories 1,740 1,740 Prepaid expenses 23,646 63,793 ---------- ---------- Total current assets 47,536 145,146 Fixed assets, net 5,604 42,087 Other assets 77,035 77,035 ---------- ---------- Total assets $ 130,175 $ 264,268 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Bank overdraft $ 206,380 $ 230,705 Accounts payable 130,774 212,111 Accrued liabilities 215,831 114,918 Line-of-credit 87,412 - ---------- ---------- Total current liabilities 640,397 557,734 Line-of-credit - 65,883 Deferred rent 228,769 94,820 Other non-current liabilities 6,149 9,503 ---------- ---------- Total liabilities 875,315 727,940 Commitments and contingencies - - Stockholder's equity: Common stock, no par value, 200 shares authorized and issued - - Retained earnings 4,860 286,328 Treasury stock, 100 shares of common stock, at cost (750,000) (750,000) ---------- ---------- Total stockholder's equity (745,140) (463,672) ---------- ---------- Total liabilities and stockholder's equity $ 130,175 $ 264,268 ========== ==========
See accompanying notes to financial statements. 2
PEREGRINE ENTERPRISES, INC. STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, -------------------------- 2004 2003 ------------ -------------- Revenues: Sales of beverages $ 229,032 $ 293,159 Service revenues 2,006,902 2,199,496 ------------ -------------- 2,235,934 2,492,655 Operating expenses: Cost of goods sold 113,802 115,154 Salaries and wages 647,391 697,305 Other general and administrative: Taxes and permits 233,786 244,981 Charge card fees 3,266 2,637 Rent 534,116 458,181 Legal and professional 75,589 9,000 Advertising and marketing 152,655 245,520 Depreciation 36,482 69,593 Other 657,769 630,652 ------------ -------------- 2,454,856 2,473,023 ------------ -------------- Income (loss) from operations (218,922) 19,632 Other income (expense): Interest income 11 30 Interest expense (9,889) (6,803) Other 332 - ------------ -------------- Total other expense (9,546) (6,773) ------------ -------------- Net income (loss) $ (228,468) $ 12,859 ============ ==============
See accompanying notes to financial statements. 3
PEREGRINE ENTERPRISES, INC. STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2004 AND 2003 COMMON STOCK TREASURY STOCK ----------------- --------------------- TOTAL NUMBER RETAINED NUMBER STOCKHOLDER'S OF SHARES AMOUNT EARNINGS OF SHARES AMOUNT EQUITY --------- ------- ---------- --------- ---------- --------------- Balance at December 31, 2002 200 $ - $ 275,963 100 $(750,000) $ (474,037) Net income - - 12,859 - - 12,859 Stockholder distributions - - (2,494) - - (2,494) --------- ------- ---------- --------- ---------- --------------- Balance at December 31, 2003 200 - 286,328 100 (750,000) (463,672) Net loss - - (228,468) - - (228,468) Stockholder distributions - - (53,000) - - (53,000) --------- ------- ---------- --------- ---------- --------------- Balance at December 31, 2004 200 $ - $ 4,860 100 $(750,000) $ (745,140) ========= ======= ========== ========= ========== ===============
See accompanying notes to financial statements. 4
PEREGRINE ENTERPRISES, INC. STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2004 2003 ------------ -------------- OPERATING ACTIVITIES Net income (loss) $ (228,468) $ 12,859 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 36,482 69,593 Changes in operating assets and liabilities: Accounts receivable 57,463 (49,530) Inventories - (740) Prepaid expenses 40,147 (24,710) Other assets - (9,000) Bank overdraft (24,325) 70,431 Accounts payable (81,337) (124,695) Accrued liabilities 100,913 10,070 Deferred rent 133,949 94,820 Other non-current liabilities (3,354) (26,562) ------------ -------------- Net cash provided by operating activities 31,470 22,536 FINANCING ACTIVITIES Proceeds from line-of-credit 52,020 10,000 Payments on line-of-credit (30,490) (30,042) Stockholder distributions (53,000) (2,494) ------------ -------------- Net cash used in financing activities (31,470) (22,536) ------------ -------------- Net decrease in cash and cash equivalents - - Cash and cash equivalents at beginning of year 14,490 14,490 ------------ -------------- Cash and cash equivalents at end of year $ 14,490 $ 14,490 ============ ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for interest $ 6,345 $ 6,632 ============ ==============
See accompanying notes to financial statements. 5 PEREGRINE ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 A. NATURE OF BUSINESS Peregrine Enterprises, Inc. (the "Company") was incorporated in the state of New York as a Subchapter S Corporation in 1992. The Company currently owns and operates a nightclub that offers live adult entertainment. The nightclub and corporate office is located in New York City, New York. B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: BASIS OF ACCOUNTING The accounts are maintained and the financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At December 31, 2004 and 2003, the Company had no such investments. The Company maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation ("FDIC"). There were no uninsured deposits at December 31, 2004 and 2003. The Company has not incurred any losses related to its cash on deposit with financial institutions. ACCOUNTS AND RECEIVABLE Accounts receivable, trade is comprised of credit card charges, which are generally converted to cash in two to five days after a purchase is made. Accounts receivable, other is comprised of a worker's compensation refund received in 2004 relating to the 2003 policy period. The Company recognizes allowances for doubtful accounts when, based on management judgment, circumstances indicate that accounts receivable will not be collected. There is no allowance for doubtful accounts as of December 31, 2004 and 2003. 6 PEREGRINE ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVENTORIES Inventories include non-alcoholic beverages, bar supplies, and Company merchandise. Inventories are carried at the lower of average cost, which approximates actual cost determined on a first-in, first-out ("FIFO") basis, or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. Furniture, equipment, vehicles and leasehold improvements have estimated useful lives between three and ten years. Expenditures for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance and repairs are expensed as incurred. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are charged or credited in the accompanying statement of operations of the respective period. REVENUE RECOGNITION The Company recognizes revenue from the sale of non-alcoholic beverages, merchandise, cover charges and services at the point-of-sale upon receipt of cash, check, or credit card charge. ADVERTISING AND MARKETING Advertising and marketing expenses are primarily composed of costs related to public advertisements and are expensed as incurred. INCOME TAXES The Company is organized as an S Corporation for federal income tax purposes. As a result, income or losses are taxable or deductible to the stockholder rather than at the corporate level; accordingly, no provision has been made for federal income taxes in the accompanying financial statements. FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with the reporting requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. The carrying value of short and long-term debt also approximates fair value since these instruments bear market rates of interest. None of these instruments are held for trading purposes. 7 PEREGRINE ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) C. FIXED ASSETS Fixed assets consisted of the following:
DECEMBER 31, 2004 2003 ---------- ---------- Leasehold improvements $ 637,571 $ 637,571 Furniture and equipment 368,342 368,342 Other 53,792 53,792 ---------- ---------- Total property and equipment 1,059,705 1,059,705 Less accumulated depreciation 1,054,101 1,017,618 ---------- ---------- Fixed assets, net $ 5,604 $ 42,087 ========== ==========
D. LINE-OF-CREDIT The Company has available a $100,000 unsecured line-of-credit with a bank. Interest is payable monthly on the outstanding balance at a floating rate of prime plus 1.5% (6.75% at December 31, 2004). This arrangement is subject to renewal in June 2005. The amount outstanding under this agreement at December 31, 2004 was $87,412. E. COMMITMENTS AND CONTINGENCIES Leases The Company leases a building under an operating lease, of which rent expense was approximately $534,000 and $458,000, net of subleasing income of $24,000 and $24,000, for the years ended December 31, 2004 and 2003, respectively. The sublease agreement has expired; however, the tenant is paying $2,000 to sublease space on a month-to-month basis. The Company's building lease contains escalating lease payments over the lease term and, as a result, the Company is recording rent expense on a straight-line basis over the term of the lease. The Company has approximately $229,000 and $95,000 of deferred rent at December 31, 2004 and 2003, respectively. 8 PEREGRINE ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) E. COMMITMENTS AND CONTINGENCIES - CONTINUED Leases - continued Future minimum annual lease obligations as of December 31, 2004, excluding future sublease income, approximates the following:
2005 $ 435,000 2006 448,000 2007 461,000 2008 475,000 2009 490,000 Thereafter 8,117,000 ----------- Total future minimum lease obligations $10,426,000 ===========
F. SUBSEQUENT EVENTS Effective January 19, 2005, the Company was acquired by Rick's Cabaret International, Inc., which operates live adult entertainment nightclubs. Rick's Cabaret International, Inc. is a publicly traded company. 9