<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: January 7, 1995
or
[ ] 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: 0-16226
ENTREE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 39-1566009
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 W. Brown Deer Road, Suite 200, Milwaukee, WI 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0037
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 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
At January 31, 1995, the registrant had issued and outstanding an
aggregate of 8,000,000 shares of its common stock.
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
FORM 10-Q INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Operations 2
Condensed Consolidated Statements of
Cash Flows 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
(i)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Entree Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
January 7, April 2,
1995 1994
---------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash $ 1,263 $ 1,031
Receivables 10,811 8,942
Inventories 4,605 6,285
Other current assets 307 219
------- -------
Total current assets 16,986 16,477
Property and equipment 7,317 7,114
Less accumulated depreciation (4,055) (3,663)
------- -------
3,262 3,451
Other assets 416 491
Intangible assets 888 910
------- -------
$ 21,552 $ 21,329
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities
Accounts payable $ 7,282 $ 5,778
Accrued liabilities 584 328
Current portion of long-term debt 363 1,786
------- -------
Total current liabilities 8,229 7,892
Notes payable to parent 1,973 1,914
Long-term debt 5,918 6,066
Preferred stock of subsidiary owned by parent 6,000 6,000
Shareholders' deficit:
Common stock 80 80
Additional paid-in capital 14,590 14,590
Accumulated deficit (15,238) (15,213)
------- -------
Total shareholders' deficit (568) (543)
------- -------
$ 21,552 $ 21,329
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
12 Weeks Ended
January 7, January 8,
1995 1994
--------- ---------
<S> <C> <C>
Net sales $ 47,232 $ 49,049
Other income 80 6
------- -------
47,312 49,055
Cost of sales 45,993 47,866
Selling and administrative expense 973 1,004
------- -------
Operating income 346 185
Interest expense (197) (202)
Equity in earnings (loss) of
unconsolidated subsidiary (52) 32
------- -------
Net earnings $ 97 $ 15
======= =======
Earnings per common share $ .01 $ .00
======= =======
Weighted average number of common shares
outstanding 8,000 8,345
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
40 Weeks Ended
January 7, January 8,
1995 1994
--------- ---------
(Restated)
<S> <C> <C>
Net sales $158,458 $164,904
Other income 93 25
------- -------
158,551 164,929
Cost of sales 154,720 160,953
Selling and administrative expense 3,135 3,149
------- -------
Operating income 696 827
Interest expense (686) (626)
Equity in earnings (loss) of unconsolidated
subsidiary (35) 69
------- -------
Earnings (loss) before accounting change (25) 270
Cumulative effect of accounting change --- 262
------- -------
Net earnings (loss) $ (25) $ 532
======= =======
Earnings per common share:
Before accounting change $ .00 $ .03
Cumulative effect of accounting change --- .03
------- -------
Net earnings $ .00 $ .06
======= =======
Weighted average number of common shares
outstanding 8,000 8,329
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
40 Weeks Ended
January 7, January 8,
1995 1994
--------- ---------
<S> <C> <C>
Operating activities:
Earnings (loss) before cumulative effect
of accounting change $ (25) $ 270
Reconciliation of earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 451 413
Provision for doubtful accounts 100 105
Equity in (earnings) loss of
unconsolidated subsidiary 35 (69)
Change in operating assets and
liabilities 1,396 444
------ ------
Net cash provided by operating activities 1,957 1,163
Investing activities:
Purchases of property and equipment (229) (231)
Other --- 15
------ ------
Net cash used by investing activities (229) (216)
Financing activities:
Change in long-term debt (1,555) (1,409)
Change in notes payable to parent 59 432
Change in other assets --- (52)
------ ------
Net cash used by financing activities (1,496) (1,029)
------ ------
Increase (decrease) in cash 232 (82)
Cash at beginning of period 1,031 1,237
------ ------
Cash at end of period $ 1,263 $ 1,155
====== ======
Non-cash transaction:
Purchase of equipment financed by seller $ --- $ 320
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Entree Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
January 7, 1995
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. 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 (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the forty weeks ended January 7, 1995 are not necessarily
indicative of the results that may be expected for the fiscal year ended
April 1, 1995. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended April 2, 1994.
The computation of earnings per common share are based on the weighted
average number of common shares.
NOTE 2 - Notes Payable to Parent
Notes payable to parent consisted of the following at January 7, 1995
and April 2, 1994 (amounts in thousands):
January 7, April 2,
Current 1995 1994
--------- ---------
Unsecured term note payable,
interest at the prime rate plus
2%, due on demand................ $ 573 $ 514
Unsecured term note payable,
interest at the prime rate plus
2.5%, due on demand.............. 1,400 1,400
----- -----
$1,973 $1,914
===== =====
The term notes payable have been classified as noncurrent liabilities
because of restrictions under a loan and security agreement. Interest
expense on all borrowings from the parent was $48,000 and $38,000 for the
twelve weeks ended January 7, 1995 and January 8, 1994, respectively, and
$149,000 and $117,000 for the forty weeks ended January 7, 1995 and January
8, 1994, respectively.
5
<PAGE>
Entree Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
NOTE 3 - Preferred Stock of Subsidiary owned by Parent
Diana owns 6,000,000 shares of Atlanta Provision Company, Inc's ("APC")
non-voting preferred stock ($1.00 par value per share). The preferred stock
earns dividends at an annual rate of $.10 per share, cumulative from April 1,
1992. Dividends are payable quarterly commencing July 1, 1995. At January
7, 1995, dividends in arrears on the preferred stock were $1,650,000. The
preferred stock may be redeemed at any time at APC's option for $1.00 per
share plus accrued and unpaid dividends. The declaration of dividends and
redemption of preferred stock are restricted by a loan and security
agreement.
NOTE 4 - Restatement
The first quarter of fiscal 1994 was restated to reflect the cumulative
effect as of April 4, 1993 of adopting SFAS No. 109, "Accounting for Income
Taxes". For the forty weeks ended January 7, 1995, earnings before
cumulative effect of accounting change was reduced by $12,000, or $.00 per
share, and net earnings was increased by $250,000, or $.03 per share.
NOTE 5 - Other
On December 31, 1994, the option granted on August 26, 1994 by Diana and
the Company to G. Michael Coggins, President of APC, to purchase all of the
Common and Preferred Stock of APC expired unexercised.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following is a summary of sales by significant product line for the
third quarter and year-to-date of fiscal 1995 and 1994 (in thousands):
Third Quarter Year-To-Date
1995 1994 1995 1994
------ ------ ------- -------
Beef $22,512 $24,869 $ 79,410 $ 89,882
Pork 8,790 9,110 31,450 30,932
Other 15,930 15,070 47,598 44,090
------ ------ ------- -------
$47,232 $49,049 $158,458 $164,904
====== ====== ======= =======
For the twelve weeks ended January 7, 1995, APC's overall volume (based
on tonnage) increased by .2%, however, net sales decreased $1,817,000 or 3.7%
from fiscal 1994 third quarter net sales. For the forty weeks ended January
7, 1995, APC's overall volume (based on tonnage) increased by .6%, however,
net sales decreased $6,446,000 or 3.9% from fiscal 1994 sales for the same
period of time. The average sales price per pound during the third quarter
decreased from $1.17 in fiscal 1994 to $1.12 in fiscal 1995. The average
sales price per pound during the forty weeks ended January 7, 1995 decreased
from $1.22 in fiscal 1994 to $1.16 in fiscal 1995. These decreases in
average sales prices per pound are attributable to sales price decreases in
beef and pork because of excess product availability in these markets. The
decreases in beef and pork sales in the third quarter are primarily
attributable to reduced average sales price per pound. The year-to-date
decrease in beef sales is primarily attributable to reduced average sales
price per pound and to a lesser extent decreased volume.
For the twelve weeks ended January 7, 1995, gross profit increased by
$56,000 or 4.7% from the corresponding period in fiscal 1994. Gross profit
as a percentage of net sales was 2.6% in the third quarter of fiscal 1995, as
compared to 2.4% in fiscal 1994. For the forty weeks ended January 7, 1995,
gross profit decreased by $213,000 or 5.4% over the corresponding period in
fiscal 1994. Gross profit as a percentage of net sales for the forty weeks
ended January 7, 1995 was 2.4% unchanged from the same period of time in
fiscal 1994. For the twelve weeks ended January 7, 1995, gross profit and
the gross profit percentage as compared to the corresponding period in fiscal
1994 increased primarily due to lower product costs. The decrease in product
costs was offset somewhat by increased transportation and warehouse costs and
inventory losses due to inefficiencies in APC's warehouse and transportation
operations (see discussion below). For the forty weeks ended January 5,
1995, gross profit decreased as compared to the corresponding period in
fiscal 1994 primarily because of increased costs attributable to
inefficiencies in APC's warehouse and transportation operations partially
offset by lower product costs.
For the twelve weeks ended January 7, 1995, selling and administrative
expenses decreased $31,000 or 3.1% from the same period in fiscal 1994. For
the forty weeks ended January 7, 1995, selling and administrative expenses
decreased $14,000 or .4% from the same period in fiscal 1994. The decreases
in selling and administrative expenses are primarily attributable to lower
sales payroll expenses.
7
<PAGE>
For the twelve weeks ended January 7, 1995, interest expense decreased
by $5,000 from the same period in fiscal 1994. The decrease is primarily
attributable to lower average borrowings by APC under its line of credit
during the third quarter of fiscal 1995 as compared to the third quarter of
fiscal 1994 partially offset by an increase in interest rates. For the forty
weeks ended January 7, 1995, interest expense increased by $60,000 from the
same period in fiscal 1994. The increase is primarily attributable to an
increase in interest rates partially offset by lower average borrowings by
APC under its line of credit.
For the twelve and forty weeks ended January 7, 1995, equity in earnings
(loss) of unconsolidated subsidiaries decreased $84,000 and $104,000,
respectively, from the same periods in fiscal 1994. The primary reason for
the decrease is due to lower earnings from APC's subsidiary.
APC began to incur inefficiencies in its warehouse and transportation
operations in the third quarter of fiscal 1994. These inefficiencies
resulted primarily in increased warehouse and transportation payroll expenses
which exceeded prior years and budgeted amounts in both fiscal 1994 and 1995.
These increased expenses adversely impacted APC's fiscal 1995 results as
compared to fiscal 1994. In the first quarter of fiscal 1995, APC engaged a
management consulting firm to examine, evaluate and assist in restructuring
its operations. In addition, APC has made management changes and has
implemented new procedures in an attempt to improve its warehouse and
transportation operations. APC is incurring additional expenses in fiscal
1995 resulting from the consulting services, in addition to increased
warehouse and transportation payroll expenses and inventory losses resulting
from a continuation of the operating inefficiencies. Management has not
determined how long the Company's results of operations will be adversely
impacted by this situation.
During the latter part of fiscal 1995's third quarter, APC obtained a
significant, new customer. APC will service the Southeastern region of this
national warehouse club. This new customer will generate a significant
amount of volume at margins that are lower than APC's average historical
margins. Initially, the addition of this new business has increased the
operational inefficiencies discussed above. After the resolution of these
operational inefficiencies, APC should be able to service this customer at a
lower average cost than its other customers because of efficiencies that
should result from shipping large volumes of product. Due to the addition of
this new customer and the limits on APC's ability to efficiently service
certain customers, APC is reviewing and evaluating the service requirements
and profitability of these customers to identify less profitable business
that can be discontinued.
8
<PAGE>
Liquidity and Capital Resources
The Company's working capital at January 7, 1995 was $8,757,000 as
compared to $8,585,000 at April 2, 1994. At April 2, 1994, APC borrowed
$6,622,000 under its line of credit, of which $5,000,000 was classified
within long-term debt, representing the estimated minimum level of borrowing
under the line of credit during fiscal 1995. Total borrowings under the line
of credit at January 7, 1995 were $5,196,000, of which $5,000,000 was
classified as long-term debt. The Company reported cash flow from operating
activities of $1,957,000 during the forty weeks ended January 7, 1995 as
compared to cash flow of $1,163,000 during the comparable period in 1994.
The primary reason for the increased cash flow and the reduction in the
borrowings under the line of credit during the forty weeks ended January 7,
1995 is due to better management of inventory through a reduction in
inventory levels and increased inventory turnover.
APC's receivables have increased as a result of business obtained from
the new customer discussed above. APC's accounts payables have increased
because it has received better terms from certain of its suppliers. APC's
inventory has not reflected the same level of increase as accounts receivable
or accounts payable because product sold to this new customer turns over
faster than the remainder of APC's inventory.
Capital expenditures for property and equipment during the forty weeks
ended January 7, 1995 were $229,000. Fiscal 1995 capital expenditures are
limited to $350,000 pursuant to restrictions in APC's credit facility.
APC's credit facility provides a revolving line of credit of up to
$9,500,000 with interest at the prime rate plus 2% through November 1996. A
$2 million letter of credit facility is included within the total credit
facility. At January 7, 1995, APC borrowed $5,196,000 and had letters of
credit of $1,500,000 issued on its behalf. At January 7, 1995, APC had
available unused borrowing capacity of $2,054,000.
Diana continues to provide certain financial support to the Company and
has loaned the Company $1,973,000 in the aggregate as of January 7, 1995. In
addition, Diana has provided other financial support to satisfy certain
requirements of the Company. Diana has no obligation to provide any
additional financial support.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EX-27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company for the
quarter covered by this report.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTREE CORPORATION
/s/ Richard Y. Fisher
Richard Y. Fisher
President and Director
/s/ R. Scott Miswald
R. Scott Miswald
Principal Financial Officer
DATE: February , 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ENTREE CORPORATION AS OF AND FOR
THE 40 WEEKS ENDING JANUARY 7, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-01-1995
<PERIOD-START> APR-03-1994
<PERIOD-END> JAN-07-1995
<CASH> 1263
<SECURITIES> 0
<RECEIVABLES> 11306
<ALLOWANCES> (495)
<INVENTORY> 4605
<CURRENT-ASSETS> 16986
<PP&E> 7317
<DEPRECIATION> (4055)
<TOTAL-ASSETS> 21552
<CURRENT-LIABILITIES> 8229
<BONDS> 5918
<COMMON> 80
0
0
<OTHER-SE> (648)
<TOTAL-LIABILITY-AND-EQUITY> 21552
<SALES> 158458
<TOTAL-REVENUES> 158551
<CGS> 154720
<TOTAL-COSTS> 154720
<OTHER-EXPENSES> 3135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 686
<INCOME-PRETAX> (25)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
