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: October 14, 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 October 31, 1995, the registrant had issued and outstanding an
aggregate of 8,000,000 shares of its common stock.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
Entree Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
October 14, April 1,
1995 1995
---------- --------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 1,284 $ 1,653
Receivables 8,583 9,658
Inventories 4,936 4,343
Other current assets 332 262
------ ------
Total current assets 15,135 15,916
Property and equipment 7,337 7,236
Less accumulated depreciation (4,141) (3,863)
------ ------
3,196 3,373
Intangible assets 865 881
Other assets 358 399
------ ------
$ 19,554 $ 20,569
====== ======
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Deficit
<S> <C> <C>
Current liabilities
Accounts payable $ 7,150 $ 8,089
Accrued liabilities 564 535
Current portion of long-term debt 591 405
------ ------
Total current liabilities 8,305 9,029
Notes payable to parent 2,047 1,993
Long-term debt 4,829 4,869
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 (16,297) (15,992)
------ ------
Total shareholders' deficit (1,627) (1,322)
------ ------
$ 19,554 $ 20,569
====== ======
</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 28 Weeks Ended
----------------------- -----------------------
October 14, October 15, October 14, October 15,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 53,668 $ 45,289 $ 128,955 $ 111,226
Other income 14 6 21 13
------ ------ ------- -------
53,682 45,295 128,976 111,239
Cost of sales 52,604 44,148 126,527 108,727
Selling and administra-
tive expenses 891 931 2,177 2,162
------ ------ ------- -------
Operating earnings 187 216 272 350
Interest expense (232) (185) (557) (489)
Equity in earnings (loss)
of unconsolidated
subsidiary 8 --- (20) 17
------ ------ ------- -------
Net earnings (loss) $ (37) $ 31 $ (305) $ (122)
====== ====== ======= =======
Earnings (loss) per
common share $ .00 $ .00 $ (.04) $ (.02)
====== ====== ======= =======
Weighted average number
of common shares
outstanding 8,000 8,000 8,000 8,000
====== ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
28 Weeks Ended
--------------
October 14, October 15,
1995 1994
---------- ----------
<S> <C> <C>
Operating activities:
Net loss $ (305) $ (122)
Reconciliation of net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 357 317
Provision for doubtful accounts 85 70
Equity in (earnings) loss of
unconsolidated subsidiary 20 (17)
Change in operating assets and
liabilities (547) 2,430
------ ------
Net cash provided (used) by operating activities (390) 2,678
Investing activities:
Purchases of property and equipment (179) (102)
Financing activities:
Payments of long-term debt (52) (88)
Net change in line of credit 198 (2,403)
Change in notes payable to parent 54 45
------ ------
Net cash provided (used) by financing activities 200 (2,446)
------ ------
Increase (decrease) in cash (369) 130
Cash at beginning of period 1,653 1,031
------ ------
Cash at end of period $ 1,284 $ 1,161
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Entree Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
October 14, 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 twenty-eight weeks ended October 14, 1995 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 30, 1996. 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 1, 1995.
The computation of earnings (loss) per common share is based on the
weighted average number of common shares outstanding.
NOTE 2 - Notes Payable to Parent
Notes payable to parent consisted of the following at October 14, 1995
and April 1, 1995 (in thousands):
October 14, April 1,
1995 1995
---------- --------
Long-term
Unsecured term note payable, interest at
the prime rate plus 2%, due on demand $ 647 $ 593
Unsecured term note payable, interest at
the prime rate plus 2.5%, due on demand 1,400 1,400
----- -----
$ 2,047 $ 1,993
===== =====
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 $53,000 and $45,000 for the
twelve weeks ended October 14, 1995 and October 15, 1994, respectively, and
$123,000 and $101,000 for the twenty-eight weeks also ended October 14, 1995
and October 15, 1994, respectively.
NOTE 3 - Preferred Stock of Subsidiary owned by Parent
The Diana Corporation ("Diana") owns 6,000,000 shares of Atlanta
Provision Company, Inc's ("APC") non-voting preferred stock. 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,
however, no dividends have been declared by APC. At October 14, 1995,
dividends in arrears on the preferred stock were $2,100,000. 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.
4
<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
second quarter and year-to-date for fiscal 1996 and 1995 (in thousands):
Second Quarter Year-To-Date
-------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Beef $ 26,218 $ 22,699 $ 62,273 $ 56,899
Pork 10,469 9,174 26,969 22,660
Other 16,981 13,416 39,713 31,667
------ ------ ------- -------
$ 53,668 $ 45,289 $ 128,955 $ 111,226
====== ====== ======= =======
For the twelve weeks ended October 14, 1995, APC's overall volume (based
on tonnage) increased by 7.5% and net sales increased $8,379,000 or 18.5%
over fiscal 1995 second quarter net sales. The average sales price per pound
during the second quarter increased from $1.15 in fiscal 1995 to $1.28 in
fiscal 1996. For the twenty-eight weeks ended October 14, 1995, APC's
overall volume (based on tonnage) increased by 6.8% and net sales increased
$17,729,000 or 15.9% over fiscal 1995 sales for the same period of time. The
average sales price per pound during the twenty-eight weeks ended October 14,
1995 increased from $1.18 in fiscal 1995 to $1.29 in fiscal 1996. The
increase in net sales in fiscal 1996 is attributable to increased business
resulting from the addition of a customer in December 1994. Sales to this
customer during the second quarter and year-to-date fiscal 1996 accounted for
more than 25% of APC's net sales. APC anticipates that sales to this
customer will decrease from current levels due to the discontinuance of
certain higher cost routes. The increase in average sales price per pound in
fiscal 1996 is due to a change in the product mix.
For the twelve weeks ended October 14, 1995, gross profit decreased by
$77,000 or 6.7% from the corresponding period in fiscal 1995. Gross profit
as a percentage of net sales was 2.0% in the second quarter of fiscal 1996 as
compared to 2.5% in fiscal 1995. The decrease in gross profit and the gross
profit percentage in fiscal 1996 is primarily due to the customer added in
December 1994. For the twenty-eight weeks ended October 14, 1995, gross
profit decreased by $71,000 or 2.8% over the corresponding period in fiscal
1995. Gross profit as a percentage of net sales for the twenty-eight weeks
ended October 14, 1995 was 1.9% as compared to 2.2% for the same period of
time in fiscal 1995. The decrease in gross profit and the gross profit
percentage for the twenty-eight weeks ended October 14, 1995 is primarily due
to the customer added in December 1994.
For the twelve weeks ended October 14, 1995, selling and administrative
expenses decreased $40,000 or 4.3% from the same period in fiscal 1995. The
decrease in these expenses in the second quarter fiscal 1996 is primarily due
to lower selling expenses attributable to a reduction in the number of sales
employees. Selling and administrative expenses as a percentage of net sales
were 1.7% in the second quarter of fiscal 1996 as compared to 2.1% in fiscal
1995. For the twenty-eight weeks ended October 14, 1995, selling and
administrative expenses increased $15,000 or .7% from the same period in
fiscal 1995. Selling and administrative expenses as a percentage of net
5
<PAGE>
sales were 1.7% for the twenty-eight weeks ended October 14, 1995 as compared
to 1.9% for the same period in fiscal 1995.
For the twelve and twenty-eight weeks ended October 14, 1995, interest
expense increased by $47,000 and $68,000, respectively, from the same periods
in fiscal 1995. The increase is primarily attributable to increased interest
rates in fiscal 1996 as compared to fiscal 1995.
For the twenty-eight weeks ended October 14, 1995, equity in earnings
(loss) of unconsolidated subsidiary decreased $37,000 from the same period in
fiscal 1995. The reason for the decrease is due to a loss from APC's
subsidiary resulting from lower gross profit margins.
Liquidity and Capital Resources
The Company recorded cash used by operating activities of $390,000
during the twenty-eight weeks ended October 14, 1995 as compared to cash
provided by operating activities of $2,678,000 for the same period of time in
fiscal 1995. The fiscal 1995 cash flow from operating activities included
reductions of inventory of $2,000,000 and receivables of $867,000 offset by
reduction in accounts payable of $410,000. The cash outflow from operating
activities during the twenty-eight weeks ended October 14, 1995 is primarily
attributable to the following changes in operating assets and liabilities:
a) inventories increased by $593,000 or 13.7% from April 1, 1995; b)
receivables decreased $1,075,000 or 11.1% from April 1, 1995 and c) accounts
payable decreased $939,000 or 11.6% from April 1, 1995.
Capital expenditures for property and equipment during the twenty-eight
weeks ended October 14, 1995 were $179,000. Fiscal 1996 capital expenditures
are limited to $550,000 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 2.0% through November 1997.
A $2 million letter of credit facility is included within the total credit
facility. At October 14, 1995, APC borrowed $4,439,000 and had letters of
credit of $2,000,000 issued on its behalf. At October 14, 1995, APC had
available unused borrowing capacity of $2,311,000. APC management estimates
that the minimum level of borrowings that will be outstanding for the
remainder of the fiscal year will be approximately $4,000,000 and has
classified $439,000 of the amount outstanding as a current liability. In
August and November 1995, APC and its lender entered into waiver and
amendment agreements relating to the Loan and Security Agreement in order to
avoid violating certain financial covenants in fiscal 1996.
Diana continues to provide certain financial support to the Company and
has loaned the Company $2,047,000 in the aggregate as of October 14, 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. Diana is exploring options with respect to the
Company's investment in APC.
6
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 - Waiver and Sixth Amendment to Loan and Security
Agreement between Atlanta Provision Company, Inc.
and Shawmut Capital Corporation dated November 28,
1995.
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company for the
quarter covered by this report.
7
<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
(Principal Executive Officer)
/s/ R. Scott Miswald
R. Scott Miswald
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
DATE: November 28, 1995
8
WAIVER AND SIXTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
November 28, 1995
Atlanta Provision Company, Inc.
1400 West Marietta Street, N.W.
Atlanta, GA 30318
Attention: G. Michael Coggins
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement
dated as of November 24, 1992, between Atlanta Provision Company,
Inc. ("Borrower") and Shawmut Capital Corporation (successor in
interest to Barclays Business Credit, Inc. ("Lender")), as amended
to date (the "Loan Agreement"). Unless otherwise defined herein,
all capitalized terms used herein shall have the same meanings
provided for such terms in the Loan Agreement.
Borrower has informed Lender that an Event of Default has
occurred under the Loan Agreement because of Borrower's failure to
achieve Net Cash Flow in excess of negative One Hundred Ninety-Five
Thousand Dollars (-$195,000) for the period ending October 14, 1995
as required under subsection 9.3(c) of the Loan Agreement (the
"Existing Default").
Borrower has requested that Lender (i) waive the Existing
Default and (ii) amend certain provisions of the Loan Agreement,
and Lender has agreed to such requests on the terms and conditions
set forth herein.
1. Waiver. Lender hereby waives the Existing Default.
The foregoing waiver is limited to the Existing Default
specified and shall not constitute a waiver of any other existing
or future Default or Event of Default or of any rights that Lender
may have under the Loan Agreement or applicable law with respect
thereto, all of which rights Lender hereby expressly reserves.
2. Amendments. The Loan Agreement is hereby amended as
follows:
a. Section 9.3(a) of the Loan Agreement (Minimum Adjusted
Tangible Net Worth) is amended and restated in its entirety, as
follows:
"(a) Minimum Adjusted Tangible Net Worth. Maintain at all
times Consolidated Adjusted Tangible Net Worth of not less than the
amount shown below for the period corresponding thereto:"
1
<PAGE>
Atlanta Provision Company, Inc.
November 28, 1995
Page 2
Period Amount
April 1, 1995 through $3,900,000
March 29, 1996
March 30, 1996 through $3,900,000
March 28, 1997
March 29, 1997 and thereafter $4,400,000
b. Section 9.3(b) of the Loan Agreement (Profitability) is
amended and restated in its entirety, as follows:
"(b) Profitability. Achieve Consolidated Adjusted Net
Earnings From Operations not to exceed a Four Hundred Thousand
Dollar ($400,000) loss for fiscal year 1996 and not less than a Five Hundred
Thousand Dollar ($500,000) profit for each fiscal year thereafter."
c. Section 9.3(c) Net Cash Flow is amended as follows:
Period Amount
November 11, 1995 ($355,000)
December 9, 1995 ($395,000)
January 6, 1996 ($465,000)
February 3, 1996 ($200,000)
March 2, 1996 $130,000
March 30, 1996 $230,000
April 27, 1996 $340,000
May 25, 1996 $350,000
June 22, 1996 $425,000
July 20, 1996 $450,000
August 17, 1996 $475,000
September 14, 1996 and thereafter $500,000
2
<PAGE>
Atlanta Provision Company, Inc.
November 28, 1995
Page 3
3. Effectiveness. This Waiver and Sixth Amendment to Loan
and Security Agreement shall be effective as of the date hereof
when duly executed by both parties and delivered to Lender. Except
as expressly amended hereby, the Loan Agreement shall remain in
full force and effect as executed.
4. Counterparts. This Waiver and Sixth Amendment to Loan
and Security Agreement may be executed in counterparts all of
which, taken together, shall constitute but one instrument.
Very truly yours,
SHAWMUT CAPITAL CORPORATION
By:/s/ Robert J. Lund
Robert J. Lund
Vice President
Acknowledged and agreed to
this 28th day of November, 1995
ATLANTA PROVISION COMPANY, INC.
By:/s/ R. Scott Miswald
Its: Secretary
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ENTREE CORPORATION AS OF AND FOR THE 28
WEEKS ENDED OCTOBER 14, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-END> OCT-14-1995
<CASH> 1284
<SECURITIES> 0
<RECEIVABLES> 8913
<ALLOWANCES> (330)
<INVENTORY> 4936
<CURRENT-ASSETS> 15135
<PP&E> 7337
<DEPRECIATION> (4141)
<TOTAL-ASSETS> 19554
<CURRENT-LIABILITIES> 8305
<BONDS> 4829
<COMMON> 80
0
0
<OTHER-SE> (1707)
<TOTAL-LIABILITY-AND-EQUITY> 19554
<SALES> 128955
<TOTAL-REVENUES> 128976
<CGS> 126527
<TOTAL-COSTS> 126527
<OTHER-EXPENSES> 2177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 557
<INCOME-PRETAX> (305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (305)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
