UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X} Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended April 1, 1995
{ } 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, Wisconsin 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0037
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
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, and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. {X}
The aggregate market value of Common Stock, Par Value $.01 Per Share, held by
non-affiliates (based upon the closing average bid and ask prices as quoted
by an OTC Market Maker) on June 1, 1995 was approximately $173,000.
As of June 1, 1995 there were 8,000,000 shares of Common Stock, Par Value
$.01 Per Share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE - NONE
<PAGE>
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Entree Corporation (the "Company") is a Delaware corporation which
was incorporated on October 8, 1986. The Company is an 81.25%-owned
subsidiary of The Diana Corporation ("Diana).
In fiscal 1995, the Company's principal business was the wholesale
distribution of meat and seafood through its wholly-owned subsidiary,
Atlanta Provision Company, Inc. ("APC").
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company, through APC, is a wholesale distributor of meat and
seafood. This is the only industry segment material to its operations.
(C) NARRATIVE DESCRIPTION OF BUSINESS
APC distributes primarily beef, pork, poultry and seafood in the
southeastern region of the United States. APC sells primarily to retail
food outlets, meat wholesalers, food service enterprises and
restaurants. It owns and operates a warehouse facility in Atlanta,
Georgia from which it delivers these products to its customers. No
single customer accounted for more than 10% of net revenues during the
year ended April 1, 1995, however, during the third quarter of fiscal
1995, APC commenced selling product to a significant new customer who is
expected to account for more than 10% of net sales in fiscal 1996 (see
Item 7.). The products purchased for distribution are supplied by food
manufacturers and processors, the two largest of which accounted for
approximately 41% of total purchases. APC does not have contracts with
any suppliers.
Wholesale meat and seafood distribution in the geographic area in
which APC operates is highly competitive. APC competes with both
national and local food wholesalers and processors, many of which have
greater financial resources and sales volume. Competition is based
primarily on price, service and quality of product.
RESEARCH AND DEVELOPMENT
The Company had no research and development activities during the
last three fiscal years.
ENVIRONMENTAL PROTECTION
Compliance with federal, state and local regulations relating to
environmental protection do not have a material effect upon capital
expenditures, operating results or the competitive position of the
Company.
1
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EMPLOYEES OF REGISTRANT
At April 1, 1995, the Company had 269 employees of whom 201 are
truck drivers and warehousemen, some of which are covered by a
collective bargaining agreement which expires in May 1997. The Company
has not experienced a significant work stoppage and considers its
present relationships with its employees to be good.
ITEM 2. PROPERTIES
APC owns a 91,000 square foot building in Atlanta, Georgia which
contains its office and warehouse space. The Company shares an office
facility that is leased by Diana for its corporate office requirements.
These facilities provide adequate capacity for the current operations.
In addition, APC owns or leases tractors and trailers used in its
distribution activities and various equipment used in its warehouse
operations. Substantially all of APC's assets are pledged as collateral
under APC's Loan and Security Agreement (see Note 3 to the consolidated
financial statements).
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
2
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(A) PRINCIPAL MARKET
The Company's common stock is included for quotation on the NASDAQ
Bulletin Board under the symbol ENTC.U, however, such inclusion does not
constitute an established public trading market for the Company's common
stock.
(B) STOCK PRICE AND DIVIDEND INFORMATION
The table below presents the high and low bid prices per share for
the Company's common stock obtained from trading reports of the National
Association of Securities Dealers subsequent to August 31, 1993.
Fiscal 1995 Fiscal 1994
Low High Low High
1st Quarter ............ 1/4 7/16 Not Available
2nd Quarter ............ 1/16 9/32 3/8 13/16
3rd Quarter ............ 1/16 3/32 7/16 5/8
4th Quarter ............ 3/32 3/32 5/16 7/16
These over-the-counter market quotations reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The Company was not able to
obtain reliable information concerning quotations for its common stock
prior to September 1, 1993.
There were no cash dividends declared during the last two fiscal
years. The Company has no plans to pay cash dividends in the
foreseeable future. The Company's ability to pay dividends is dependent
upon distributions from APC. APC's Loan and Security Agreement
prohibits APC from making distributions to the Company.
(C) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's common stock as of
June 5, 1995 was 808.
3
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ITEM 6. SELECTED FINANCIAL DATA
ENTREE CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
April 1, April 2, April 3, March 28, March 30,
1995 1994 1993(1) 1992 1991
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales...............$215,141 $215,333 $200,737 $156,590 $185,236
Net earnings (loss)
before accounting
change................. (779) 218 (80) (2,155) (1,010)
Net earnings (loss)..... (779) 480 (80) (2,155) (1,010)
Net earnings (loss) per
common share before
accounting change...... (.10) .03 (.01) (.27) (.13)
Net earnings (loss)
per common share....... (.10) .06 (.01) (.27) (.13)
Weighted average
number of common
shares outstanding..... 8,000 8,320 8,000 8,000 8,000
Dividends per share..... --- --- --- --- ---
Balance Sheet Data:
Working capital.........$ 6,887 $ 8,585 $ 7,535 $ 1,176 $ 3,158
Total assets............ 20,569 21,329 18,070 19,005 17,672
Long-term debt (2)...... 6,862 7,980 6,966 6,455 6,509
Total liabilities....... 21,891 21,872 19,093 19,948 16,460
Shareholders' equity
(deficit)............. (1,322) (543) (1,023) (943) 1,212
(1) Fiscal year ended April 3, 1993 includes 53 weeks; all other fiscal
years include 52 weeks.
(2) In fiscal 1991, Diana advanced APC $5,500,000 pursuant to a term note.
In fiscal 1993, Diana purchased 6 million shares of APC non-voting
preferred stock in exchange for the cancellation of $6 million of notes
payable owed by APC to Diana. In fiscal 1993, APC entered into a Loan
and Security Agreement with a lender providing a revolving line of
credit of up to $9,500,000.
</TABLE>
4
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FISCAL YEAR ENDED APRIL 1, 1995 VERSUS
APRIL 2, 1994
The following is a summary of sales by significant product line for
fiscal 1995 and 1994 (in thousands):
1995 1994
-------- --------
Beef $ 107,055 $ 116,557
Pork 42,700 40,770
Other 65,386 58,006
-------- --------
$ 215,141 $ 215,333
======== ========
Fiscal 1995 net sales decreased $192,000 or .1% over fiscal 1994 net
sales. APC's overall volume (based on tonnage) during this period increased
by 1.8%. The average sales price per pound during the year decreased from
$1.22 per pound in fiscal 1994 to $1.20 per pound in fiscal 1995. The
decrease in average sales price per pound is attributable to sales price
decreases in beef and pork because of excess product availability in these
markets as well as changes in the mix of product sold. The decrease in beef
sales is primarily attributable to reduced average sales price per pound and
to a lesser extent decreased volume.
Fiscal 1995 gross profit decreased by $718,000 or 14.3% over fiscal 1994
primarily due to increased transportation and warehouse costs and inventory
losses due to inefficiencies in APC's warehouse and transportation operations
(see discussion below) partially offset by lower product costs. Gross profit
as a percentage of net sales was 2% in fiscal 1995 as compared to 2.3% in
fiscal 1994.
In fiscal 1995, selling and administrative expenses increased by $60,000
over fiscal 1994. As a percentage of net sales, selling and administrative
expenses was 2% in fiscal 1995 as compared to 1.9% in fiscal 1994. The
increase in selling and administrative expenses is primarily due to increased
administrative payroll, insurance and consulting expenses, partially offset
by lower selling expenses.
In fiscal 1995, interest expense increased by $118,000 or 14.1% from
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.
Equity in earnings (loss) of unconsolidated subsidiary decreased $83,000
from fiscal 1994. The primary reason for the decrease is due to lower
earnings from APC's subsidiary.
In fiscal 1995, APC continued to incur inefficiencies in its warehouse
and transportation operations which began in fiscal 1994. APC incurred
increased warehouse and transportation payroll expenses and inventory losses
resulting from a continuation of the operating inefficiencies. Consequently,
APC made management changes and implemented new procedures in an attempt to
improve its warehouse and transportation operations. Furthermore, during the
latter part of fiscal 1995's third quarter, APC obtained a significant, new
customer. APC services the Southeastern region of this national warehouse
club. This new customer will generate a significant amount of volume at
5
<PAGE>
margins that are lower than APC's average historical margins. Initially, the
addition of this new business increased the operational inefficiencies
discussed above which management believes is the primary reason for the loss
of $754,000 incurred in the fourth quarter and the loss for the 52 weeks
ended April 1, 1995. 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.
RESULTS OF OPERATIONS - FISCAL YEAR ENDED APRIL 2, 1994 VERSUS
APRIL 3, 1993
The following is a summary of sales by significant product line for
fiscal 1994 and 1993 (in thousands):
1994 1993
-------- --------
Beef $ 116,557 $ 120,454
Pork 40,770 31,617
Other 58,006 48,666
-------- --------
$ 215,333 $ 200,737
======== ========
Fiscal 1994 net sales increased $14,596,000 or 7.3% over fiscal 1993 net
sales. APC's overall volume (based on tonnage) during this period increased
by 5.2%. The average sales price per pound during the year increased from
$1.20 per pound in fiscal 1993 to $1.22 per pound in fiscal 1994. This
increase is primarily due to a modest sales price increase in all product
lines and to a lesser extent a change in the mix of product.
Fiscal 1994 gross profit increased by $497,000 or 11% over fiscal 1993
primarily due to increased sales. Gross profit as a percentage of net sales
was 2.3% in fiscal 1994 which was unchanged from fiscal 1993.
In fiscal 1994, selling and administrative expenses increased by $3,000
over fiscal 1993. As a percentage of net sales, selling and administrative
expenses was 1.9% in fiscal 1994 as compared to 2.1% in fiscal 1993. The
decrease in selling and administrative expenses as a percentage of net sales
is primarily due to the spreading of certain fixed selling expenses over
increased sales.
In fiscal 1994, interest expense increased by $86,000 or 11.5% from
fiscal 1993. The increase is primarily attributable to increased letter of
credit fees and increased amortization of deferred financing charges
associated with APC's revolving line of credit which became effective in the
fourth quarter of fiscal 1993.
APC began to incur inefficiencies in its warehouse and transportation
operations in the third quarter of fiscal 1994, partially attributable to
increased volume. These inefficiencies resulted primarily in increased
payroll expenses which exceeded prior years and budgeted amounts in fiscal
1994. These increased expenses adversely impacted APC's fourth quarter
results. As a result, APC incurred a loss of $71,000 during the fourth
quarter of fiscal 1994 after reporting profitable results of operations
during the first three quarters of fiscal 1994.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash flow from operating activities of $3,595,000
as compared to cash used by operating activities of $513,000 in fiscal 1994.
Cash outflow from the loss of $779,000 in fiscal 1995 was more than offset by
a net decrease in working capital items, primarily inventory and accounts
payable. Inventory decreased by $1,942,000 or 30.9% from fiscal 1994 due to
better management of inventory through a reduction in inventory levels and
increased inventory turnover. At the end of fiscal 1994, APC increased its
pork inventories in anticipation of price increases. Accounts payable
increased by $2,311,000 or 40% from fiscal 1994 which is primarily due to
longer payment terms obtained from vendors providing product that is sold to
the significant new customer previously discussed as compared to payment
terms from APC's primary existing vendors. Receivables increased $716,000 or
8% over fiscal 1994 despite flat sales. The increase in receivables is
primarily attributable to business obtained from the new customer described
above.
Capital expenditures for property and equipment during fiscal 1995 were
$474,000. Fiscal 1996 capital expenditures are limited to $550,000 pursuant
to restrictions in the 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%. The facility expires in
November 1997. A $2 million letter of credit facility is included within the
total credit facility. At April 1, 1995, APC borrowed $4,241,000 and had
letters of credit of $1,500,000 issued on its behalf. At April 1, 1995, APC
had available unused borrowing capacity of $3,009,000. In June 1995, APC and
its lender entered into a waiver and amendment agreement relating to the Loan
and Security Agreement in order to avoid violating certain financial covenants
in fiscal 1995 and 1996.
Diana continues to provide certain financial support to the Company and
has loaned the Company $1,993,000 in the aggregate as of April 1, 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.
ACCOUNTING PRONOUNCEMENTS
Effective April 4, 1993, the Company adopted the liability method of
accounting for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
cumulative effect as of April 4, 1993 of adopting SFAS No. 109 increased net
earnings for fiscal 1994 by $262,000.
IMPACT OF INFLATION
Inflation has not had a significant impact on APC's net sales or
earnings (loss) for the three most recent fiscal years.
7
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ENTREE CORPORATION
PAGE
Report of Ernst & Young LLP, Independent Auditors............ 9
Consolidated Balance Sheets - April 1, 1995 and
April 2, 1994............................................ 10
Consolidated Statements of Operations - Fiscal Years
Ended April 1, 1995, April 2, 1994 and
April 3, 1993............................................ 11
Consolidated Statements of Shareholders' Deficit -
Fiscal Years Ended April 1, 1995,
April 2, 1994 and April 3, 1993.......................... 12
Consolidated Statements of Cash Flows - Fiscal Years
Ended April 1, 1995, April 2, 1994 and
April 3, 1993............................................ 13
Notes to Consolidated Financial Statements.................... 14
8
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Entree Corporation
We have audited the accompanying consolidated balance sheets of Entree
Corporation and subsidiaries (the Company) as of April 1, 1995 and April 2,
1994, and the related consolidated statements of operations, shareholders'
deficit and cash flows for each of the three years in the period ended April
1, 1995. Our audits also included the financial statement schedules listed
in the Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position of Entree
Corporation and subsidiaries at April 1, 1995 and April 2, 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended April 1, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 7 to the financial statements, the Company changed its
method of accounting for income taxes, effective April 4, 1993.
Milwaukee, Wisconsin ERNST & YOUNG LLP
June 2, 1995, except for Note 3
as to which the date is June 28, 1995
9
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
April 1, April 2,
1995 1994
-------- --------
ASSETS (Note 3)
<S> <C> <C>
Current assets
Cash.............................................. $ 1,653 $ 1,031
Receivables, less allowance for doubtful
accounts of $417 and $428....................... 9,658 8,942
Inventories....................................... 4,343 6,285
Other current assets.............................. 262 219
------ ------
Total current assets...................... 15,916 16,477
Property and equipment
Land.............................................. 230 230
Building and improvements......................... 4,400 4,154
Equipment......................................... 2,606 2,730
------ ------
7,236 7,114
Less accumulated depreciation..................... (3,863) (3,663)
------ ------
3,373 3,451
Other assets........................................ 399 491
Goodwill, net....................................... 881 910
------ ------
$20,569 $21,329
====== ======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable.................................. $ 8,089 $ 5,778
Accrued liabilities............................... 535 328
Current portion of long-term debt................. 405 1,786
------ ------
Total current liabilities.................... 9,029 7,892
Notes payable to parent............................. 1,993 1,914
Long-term debt...................................... 4,869 6,066
Preferred stock of subsidiary owned by parent....... 6,000 6,000
Commitments (Note 4)................................
Shareholders' deficit
Common Stock, $.01 par value,
authorized 20,000,000 shares, issued
and outstanding 8,000,000 shares................. 80 80
Additional paid-in capital.......................... 14,590 14,590
Accumulated deficit................................. (15,992) (15,213)
------ ------
Total shareholders' deficit..................... (1,322) (543)
------ ------
$20,569 $21,329
====== ======
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
--------------------------------
April 1, April 2, April 3,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales.............................. $215,141 $215,333 $200,737
Other income........................... 94 112 171
------- ------- -------
215,235 215,445 200,908
Cost of sales.......................... 210,828 210,302 196,203
Selling and administrative expenses.... 4,198 4,138 4,135
------- ------- -------
Operating earnings..................... 209 1,005 570
Interest expense....................... (953) (835) (749)
Non-operating income................... --- --- 93
Equity in earnings (loss) of
unconsolidated subsidiary............ (35) 48 6
------- ------- -------
Earnings (loss) before accounting
change............................... (779) 218 (80)
Cumulative effect of accounting change. --- 262 ---
------- ------- -------
Net earnings (loss).................... $ (779) $ 480 $ (80)
======= ======= =======
Earnings (loss) per common share:
Before accounting change............. $ (.10) $ .03 $ (.01)
Accounting change.................... --- .03 ---
------- ------- -------
Net earnings (loss).................. $ (.10) $ .06 $ (.01)
======= ======= =======
Weighted average number of common
shares outstanding................... 8,000 8,320 8,000
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
11
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ENTREE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(In Thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Shareholders'
Stock Capital Deficit Deficit
------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balances at March 28, 1992 $ 80 $14,590 $(15,613) $ (943)
Net loss --- --- (80) (80)
--- ------ ------- ------
Balances at April 3, 1993 80 14,590 (15,693) (1,023)
Net earnings --- --- 480 480
--- ------ ------- ------
Balances at April 2, 1994 80 14,590 (15,213) (543)
Net loss --- --- (779) (779)
--- ------ ------- ------
Balances at April 1, 1995 $ 80 $14,590 $(15,992) $(1,322)
=== ====== ======= ======
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
------------------------------
April 1, April 2, April 3,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Earnings (loss) before cumulative effect
of accounting change................... $ (779) $ 218 $ (80)
Adjustments to reconcile earnings (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization......... 605 551 420
Provision for doubtful accounts....... 145 135 406
Equity in (earnings) loss of
unconsolidated subsidiary........... 35 (48) (6)
Changes in operating assets and
liabilities:
Restricted short-term investments. --- --- 2,117
Receivables....................... (861) (1,251) (1,557)
Inventories....................... 1,942 (1,789) 378
Accounts payable.................. 2,311 1,814 (2,111)
Accrued liabilities............... 207 3 (10)
Other............................. (10) (146) (179)
------ ------ ------
Net cash provided (used) by operating
activities.............................. 3,595 (513) (622)
Investing activities:
Purchases of property and equipment..... (474) (335) (225)
Financing activities:
Change in notes payable to parent....... 79 337 (4,953)
Net change in line of credit............ (2,381) 414 6,228
Payments of long-term debt.............. (197) (109) (61)
------ ------ ------
Net cash provided (used) by financing
activities.............................. (2,499) 642 1,214
------ ------ ------
Increase (decrease) in cash............... 622 (206) 367
Cash at beginning of year................. 1,031 1,237 870
------ ------ ------
Cash at end of year....................... $ 1,653 $ 1,031 $ 1,237
====== ====== ======
SUPPLEMENTAL INFORMATION
Interest paid........................... $ 967 $ 876 $ 812
Non-cash transactions:
Reduction in notes payable to parent in
exchange for preferred stock of APC... --- --- 6,000
Purchase of equipment financed by seller --- 320 52
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Entree Corporation (the "Company") is an 81.25%-owned subsidiary of
The Diana Corporation ("Diana" or "Parent"). The consolidated financial
statements include the accounts of the Company and Atlanta Provision
Company, Inc. ("APC") which is engaged in the wholesale distribution of
meat and seafood in the southeastern United States. APC is a wholly-
owned subsidiary of the Company.
Fiscal Year: The Company's fiscal year ends on the Saturday
closest to March 31. There were 53 weeks in fiscal 1993 and 52 weeks in
all other years presented.
Inventories: Inventories, consisting of finished product, are
stated at the lower of cost or market with items removed from inventory
primarily based on the specific identification method.
Unconsolidated Subsidiary: The investment in a 50%-owned
subsidiary is accounted for using the equity method of accounting.
Property and Equipment: Property and equipment are stated at cost.
Depreciation for financial reporting purposes is computed on the
straight-line method over 3 to 10 years for equipment and 5 to 25 years
for building and improvements.
Goodwill: Goodwill is being amortized on a straight-line basis
over a forty year period. Accumulated amortization was $281,000 and
$252,000 at April 1, 1995 and April 2, 1994, respectively. Goodwill is
reviewed for impairment whenever events or circumstances provide
evidence that suggest that the carrying amount of the asset may not be
recoverable. Impairment is determined by using identifiable cash flows
over the remaining amortization period.
Revenue Recognition: The Company recognizes revenue when product
is shipped.
Income Taxes: The Company is included in the consolidated federal
income tax return filed by Diana. For financial reporting purposes, the
Company calculates the current provision or benefit for income taxes on
a separate return basis. No obligation exists which would require
payment by Diana to the Company for Diana's utilization of the Company's
current or prior operating losses. Diana will not require the Company
to make a tax payment for future taxable income to the extent that Diana
utilizes existing unused operating loss carryforwards of the Company.
Earnings (Loss) Per Common Share: Earnings (loss) per share
amounts are determined by dividing earnings (loss) by the weighted
average number of shares of common stock and materially dilutive common
stock equivalents (stock options) outstanding.
14
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Concentration of Credit Risk: A majority of APC's sales are to
retail food stores and meat wholesalers, with the remaining sales to
food service enterprises and restaurants. APC performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. Receivables from APC's customers are generally due
within 7 to 30 days.
NOTE 2 - NOTES PAYABLE TO PARENT AND OTHER RELATED PARTY TRANSACTIONS
The following summarizes notes payable to Parent:
April 1, April 2,
1995 1994
-------- --------
(In Thousands)
Long-term
Unsecured term note payable, interest
at the prime rate plus 2% (11% in
1995 and 8.25% in 1994), due on
demand............................. $ 593 $ 514
Unsecured term note payable, interest
at the prime rate plus 2.5% (11.5%
in 1995 and 8.75% in 1994), due on
demand............................. 1,400 1,400
----- -----
$1,993 $1,914
===== =====
The unsecured term notes payable have been classified as noncurrent
liabilities because of restrictions under a loan and security agreement
(see Note 3). Interest expense on all borrowings from Diana was
$201,000, $154,000 and $440,000 for fiscal years 1995, 1994 and 1993,
respectively.
Diana owns 6,000,000 shares of APC's 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. At April 1, 1995, dividends in arrears on the
preferred stock were $1,800,000. 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 is restricted (see Note 3). Diana's investment in APC's preferred
stock is reflected within the accompanying balance sheet as preferred
stock of subsidiary owned by parent.
APC purchased approximately $1,747,000 and $1,984,000 of products
from a 50%-owned subsidiary during fiscal 1995 and 1994, respectively.
15
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following:
Final April 1, April 2,
Due Date 1995 1994
-------- ------- -------
(In Thousands)
Line of credit..................... November 1997 $4,241 $6,622
7% and 8.25% mortgage notes...... August 2006 875 924
Note payable with interest at the
prime rate plus .5% (9.5% in
1995) collateralized by trailers. September 1996 135 258
Note payable with interest at 11%,
collateralized by equipment...... October 1996 23 48
----- -----
5,274 7,852
Less current maturities............ (405) (1,786)
----- -----
$4,869 $6,066
===== =====
APC has a Loan and Security Agreement ("Agreement") with a lender
(amended effective June 28, 1995) providing a revolving line of credit
of up to $9,500,000 with interest at the prime rate plus 2% (prime was
9% at April 1, 1995). A $2 million letter of credit facility with fees
of 2% is included within the total credit facility. At April 1, 1995,
APC borrowed $4,241,000 and had letters of credit of $1,500,000 issued
on its behalf by the lender. Management estimates that the minimum
level of borrowings that will be outstanding during fiscal 1996 will be
approximately $4,000,000 and has classified $241,000 of the line of
credit outstanding as a current liability at April 1, 1995.
Borrowings under the Agreement are restricted based on defined
percentages of eligible accounts receivable and inventories. The amount
available under the Agreement at April 1, 1995 was $3,009,000. APC pays
a fee of 1/2% on the average unused line of credit. Substantially all
assets of APC are pledged as collateral under the Agreement. The
Agreement provides for the maintenance of certain financial ratios and
restricts APC in a number of areas, including, but not limited to,
declaration of dividends, mergers and acquisitions, transactions with
affiliates, repayment of note payable to affiliate, capital expenditures
and additional indebtedness.
The mortgage notes payable are collateralized by land and building
with a carrying value of approximately $2,618,000 as of April 1, 1995.
Aggregate annual maturities of long-term debt, including the term
notes payable to Parent (see Note 2), for the five fiscal years
subsequent to April 1, 1995 are as follows (in thousands):
1996 ................................ $ 405
1997 ................................ 686
1998 ................................ 5450
1999 ................................ 54
2000 ................................ 59
16
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 - LEASE COMMITMENTS
APC leases tractors and trailers used in its distribution
activities under operating leases with terms ranging from five to eight
years. APC also leases various equipment used in its warehouse
operations under operating leases with terms generally not exceeding one
year. Total rent expense (including contingent rentals based on miles
driven) under these leases in fiscal 1995, 1994 and 1993 was
approximately $1,650,000, $1,750,000 and $1,709,000, respectively.
Future minimum payments (excluding contingent rentals) under
noncancelable operating leases with initial terms of one year or more
for fiscal years subsequent to April 1, 1995 are as follows (in
thousands):
1996 ................................ $ 858
1997 ................................ 654
1998 ................................ 483
1999 ................................ 369
2000 ................................ 213
Thereafter........................... 139
NOTE 5 - STOCK OPTIONS
In fiscal 1994, the Company's Board of Directors adopted the Entree
Corporation 1993 Nonqualified Stock Option Plan (the "Plan"), which
permits the Company to grant nonqualified stock options to key employees
and directors of the Company and its subsidiaries. The Plan is limited
to 600,000 common shares. The Plan is administered by the Company's
Board of Directors, which is authorized, among other things, to
determine which persons receive options under the Plan, the number of
shares for which an option may be granted, and the exercise price and
expiration date for each option. Options granted under the Plan may not
be exercised after eleven years from the date of grant, and no options
may be granted after July 6, 2004. The exercise price will not be less
than the fair market value of the Company's common stock on the date of
grant, although the Board has discretion to set the exercise price at
any amount. Stock option transactions for fiscal 1995 and 1994 are as
follows:
1995 1994
------ ------
Options outstanding at beginning of year....... 400,000 ---
Options granted................................ --- 400,000
Options canceled............................... (50,000) ---
------- -------
Options outstanding at end of year............. 350,000 400,000
======= =======
Options exercisable............................ --- ---
Option price................................... $ .10 $ .10
17
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - BENEFIT PLANS
APC contributes to a multiemployer defined benefit pension plan
pursuant to the terms of a collective bargaining agreement. Amounts
contributed to this plan by APC were $34,000, $39,000 and $36,000 for
fiscal years 1995, 1994 and 1993, respectively. APC has a 401(k) plan
which covers non-union employees. There were no contributions under
this plan for any years presented.
NOTE 7 - INCOME TAXES
Effective April 4, 1993, the Company adopted the liability method
of accounting for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
cumulative effect as of April 4, 1993 of adopting SFAS No. 109 increased
net earnings for fiscal 1994 by $262,000.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. Components of the
Company's deferred tax liabilities and assets are as follows:
April 1, April 2,
1995 1994
-------- --------
(In Thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 163 $ 167
State net operating loss carryforwards 786 790
Accrued vacation 39 37
Other 53 54
----- -----
Total deferred tax assets 1,041 1,048
Valuation allowance for deferred tax assets (256) (251)
----- -----
Net deferred tax assets 785 797
Deferred tax liabilities:
Depreciation and amortization 262 245
Building and improvements basis difference 523 552
----- -----
Total deferred tax liabilities 785 797
----- -----
Net deferred taxes $ --- $ ---
===== =====
18
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - INCOME TAXES - (Continued)
The state net operating loss carryforwards expire on various dates
through fiscal 2010.
A reconciliation of the income tax expense and the amount computed
by applying the federal statutory income tax rate (34%) to earnings
(loss) before income taxes and before accounting change is as follows:
Year Ended
------------------------------
April 1, April 2, April 3,
1995 1994 1993
-------- -------- --------
(In Thousands)
Income tax provision (credit) at
statutory rate........................ $(265) $ 74 $ (27)
Tax effect of operating loss
carryforward.......................... 210 (126) ---
Non-deductible amortization............. 35 36 32
Other, net.............................. 20 16 (5)
---- ---- ----
Income tax expense...................... $ --- $ --- $ ---
==== ==== ====
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to
the persons who are now directors of the Company:
Present Principal
Occupation and Five
Name and Age Year Employment History
- ------------ -----------------------
Richard Y. Director of the Company since 1987, Secretary from 1987
Fisher (62) to 1991, President since 1991; currently Chairman of
the Board of Diana and has held various executive
positions with Diana since 1984, Director of Diana
since 1978.
Sydney B. Director of the Company since April 1991; Executive Vice
Lilly (66) President of Diana since April 1995, Director since 1988
and from 1980 to 1984, Legal and business consultant
between 1984 and 1995.
G. Michael Director of the Company since May 1993; President and
Coggins (42) Chief Executive Officer of APC since December 1991,
Retail Sales Manager from September 1991 to December
1991; Vice President and General Manager of D & M
Wholesale Meats, Inc. from 1987 to 1991.
The Company has no Executive, Audit, Nominating or Compensation
Committee of the Board of Directors.
The Board of Directors of the Company did not hold any meetings
during fiscal 1995. Each Director serves for a term of one year or
until his successor is duly elected. The Company's executive officers
are appointed by the Board of Directors and hold office at the will of
the Board. Richard Y. Fisher, Sydney B. Lilly and G. Michael Coggins
receive no compensation for services as Directors of the Company.
Mr. Fisher was an executive officer and a director of Retailing
Corporation of America ("RCOA") and Economy Dry Goods, Inc. ("EDG") from
RCOA's incorporation in 1982 and the purchase of EDG by RCOA in 1986 to
his resignation in October 1990. On January 4, 1991, RCOA and EDG
became the subject of proceedings under Chapter XI of the Federal
Bankruptcy Code. On October 23, 1992, a Plan of Reorganization was
confirmed for EDG.
The executive officers of the Company are:
Name Age Since Position
- ------------------ --- ----- -------------------------
Richard Y. Fisher 62 1987 President
R. Scott Miswald 39 1990 Secretary, Treasurer and
Chief Accounting Officer
G. Michael Coggins 42 1991 President and Chief
Executive Officer of APC
20
<PAGE>
The five-year employment history of Messrs. Fisher and Coggins is
provided under the caption "Directors of the Registrant." R. Scott
Miswald has been Secretary and Treasurer since 1991 and Chief Accounting
Officer of the Company since 1990; Vice President of Diana since 1992,
Treasurer since 1989 and Controller since 1985.
ITEM 11. EXECUTIVE COMPENSATION
The Summary Compensation Table reflects the total annual
compensation paid by the Company for the account of the only executive
officer of the Company whose salary and bonus for the fiscal year ended
April 1, 1995 exceeded $100,000. Messrs. Fisher and Miswald are
employees of, are compensated by and perform their services almost
exclusively for Diana. They receive no additional compensation from
Diana, the Company or any other third party for serving as officers of
the Company, except in 1994 they received stock options for 100,000 and
50,000 shares, respectively, on the same terms as the option granted to
Mr. Coggins.
SUMMARY COMPENSATION TABLE
Name and Principal Position - G. Michael Coggins, President and Chief
Executive Officer of APC
Annual Compensation Long Term
Fiscal Other Annual Compensation Awards All Other
Year Salary Bonus Compensation Stock Options (#) Compensation
- ---- ------ ----- ------------- ------------------- ------------
1995 $140,000 $--- $--- --- $ ---
1994 140,000 --- --- 100,000 ---
1993 129,000 --- --- --- ---
FISCAL YEAR END OPTION VALUES
Name - G. Michael Coggins
Value of Unexercised
Number of Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End
----------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------------------------- --------------------------
--- 100,000 $--- $---
Employment Agreements
APC entered into an employment agreement with G. Michael Coggins
(the "Employment Agreement") effective August 23, 1991 for a period of
5 years. The Employment Agreement provides for a guaranteed minimum
annual salary of $75,000 subject to an annual review. Mr. Coggins'
annual salary was increased during fiscal 1993 to $140,000. The
Employment Agreement provides that Mr. Coggins should not be
discriminated against with respect to medical, disability, hospital and
life insurance programs, from time to time, made available to APC's
officers as a class.
21
<PAGE>
Compensation Committee Interlocks and Insider Participation
Mr. Fisher is President of the Company and is a Director of Diana.
Mr. Miswald is Secretary, Treasurer and Chief Accounting Officer of the
Company and is Vice President, Treasurer and Controller of Diana. Mr.
Coggins is President and Chief Executive Officer of APC.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(A) and (B) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following sets forth as of June 1, 1995, information concerning
(i) beneficial ownership of the Company's common stock by the only
persons who are known by the Company to own beneficially more than 5% of
the common stock (including options exercisable within 60 days of June
1, 1995) and (ii) beneficial ownership of the common stock (including
options exercisable within 60 days of June 1, 1995) by each director and
named executive officer and by all directors and officers of the Company
as a group. Except as otherwise noted, the persons named below have
sole voting and investment power with respect to shares shown as
beneficially owned:
Amount of
Beneficial Percent
Name of Beneficial Owner Ownership Of Class
------------------------ ---------- --------
The Diana Corporation
8200 W. Brown Deer Road
Suite 200
Milwaukee, WI 53223..... 6,500,000 81.25%
Richard Y. Fisher (1)...... 70,000 *
Sydney B. Lilly ........... 10,000 *
G. Michael Coggins......... --- ---
All Directors and
Officers as a
Group (4 persons)........ 90,000 1.1
*less than 1%.
(1) Mr. Fisher has direct ownership of 20,000 shares of the Company's
common stock and indirect ownership of 50,000 shares which are
owned by his adult son and daughter as to which Mr. Fisher
disclaims beneficial ownership, for an aggregate of 70,000 shares.
Excludes the Company's outstanding shares owned by Diana.
22
<PAGE>
The following table sets forth as of June 1, 1995, information
concerning the beneficial ownership of Diana's common stock, par value
$1.00 per share, by each Director, by the named Executive Officer of the
Company and by all Directors and Officers as a group:
Amount of
Beneficial Percent
Name of Beneficial Owner Ownership Of Class
------------------------ ---------- --------
Richard Y. Fisher (1)...... 807,983 19.4
Sydney B. Lilly (1)........ 141,597 3.5
G. Michael Coggins......... --- ---
All Directors and
Officers as a
Group (4 persons) (1).... 957,297 22.4
(1) Includes options to purchase 249,776 shares by Mr. Fisher, 113,587
shares by Mr. Lilly, and 368,875 shares for all Directors and
Officers as a group all exercisable within 60 days of June 1, 1995.
(C) CHANGES IN CONTROL
In connection with APC's Loan and Security Agreement with a lender,
in November 1992 the Company pledged all of the common stock of APC that
it owns to the lender. This pledge of stock terminates upon the
satisfaction of all obligations by the Company to the lender under the
pledge agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1995, Diana cancelled a promissory note with APC
established on July 3, 1993 under which APC owed Diana $1,000,000 and a
promissory note with APC established June 23, 1993 under which APC owed
Diana $400,000. These notes were replaced with a promissory note due on
demand dated June 1, 1994 between Diana and APC for $1,400,000 bearing
interest at prime plus 2.5%. Since June 1, 1994, the largest amount
owed to Diana under this note was $1,400,000.
Diana advanced additional amounts to the Company under an unsecured
demand note established on March 5, 1990 with interest at prime plus
2.0%. Since the beginning of fiscal 1995, the largest amount owed to
Diana under this note was $593,000.
Interest expense on all borrowings from Diana was $201,000 in
fiscal 1995.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Form 10-K
(a) Financial Statements and Financial Statement Schedules Page Number
The following consolidated financial statements
of Entree Corporation are included in Item 8:
Report of Ernst & Young LLP, Independent Auditors.... 9
Consolidated Balance Sheets - April 1, 1995
and April 2, 1994................................... 10
Consolidated Statements of Operations - Fiscal
Years Ended April 1, 1995, April 2, 1994 and
April 3, 1993....................................... 11
Consolidated Statements of Shareholders' Deficit -
Fiscal Years Ended April 1, 1995, April 2, 1994
and April 3, 1993................................... 12
Consolidated Statements of Cash Flows - Fiscal
Years Ended April 1, 1995, April 2, 1994
and April 3, 1993................................... 13
Notes to Consolidated Financial Statements........... 14
The following consolidated financial statement
schedule of Entree Corporation is included
in Item 14(d):
Schedule II - Valuation and Qualifying Accounts...... 27
All other schedules are omitted because the required information
is not present or is not present in amounts sufficient to require
submission of the schedules or because the information required is
included in the consolidated financial statements or the notes
thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal
1995.
24
<PAGE>
(c) Exhibits
Exhibit
Number Description
3.1 Certificate of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 of Registrant's Registration
Statement on Form S-1).
3.2 By-Laws of the Registrant (incorporated herein by reference to
Exhibit 3.2 of Registrant's Registration Statement on Form S-1).
4.1 Loan and Security Agreement dated November 24, 1992 between
Barclays Business Credit, Inc. and Atlanta Provision Company, Inc.
(incorporated herein by reference to Exhibit 10.1 of Registrant's
Form 10-Q for the period ended January 2, 1993).
4.2 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Barclays Business Credit, Inc. dated June 25,
1993 (incorporated herein by reference to Exhibit 4.1 of
Registrant's Form 10-Q for the period ended July 24, 1993).
4.3 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Barclays Business Credit, Inc. dated September
9, 1993 (incorporated herein by reference to Exhibit 4.1 of
Registrant's Form 10-Q for the period ended October 16, 1993).
4.4 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Barclays Business Credit, Inc. dated June 1,
1994 (incorporated herein by reference to Exhibit 4.4 of
Registrant's Form 10-K for the year ended April 2, 1994).
4.5 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Shawmut Capital Corporation (successor to
Barclays Business Credit, Inc.) dated June 28, 1995.
10.1 Employment agreement dated August 31, 1991 between Atlanta
Provision Company, Inc. and Michael Coggins (incorporated herein
by reference to Exhibit 10.5 of Registrant's Form 10-K for the
year ended March 28, 1992).*
10.2 Agreement dated May 13, 1992 between Atlanta Provision Company,
Inc. and The United Food & Commercial Worker's District Union #442
(incorporated herein by reference to Exhibit 10.7 of Registrant's
Form 10-K for the year ended March 28, 1992).
10.3 Promissory note dated March 31, 1986 between Atlanta Provision
Company, Inc. and the City of Atlanta, Georgia (incorporated
herein by reference to Exhibit 10.8 of Registrant's Form 10-K for
the year ended March 28, 1992).
10.4 Promissory note between Atlanta Provision Company, Inc. and the
Small Business Administration (incorporated herein by reference
to Exhibit 10.9 of Registrant's Form 10-K for the year ended March
28, 1992).
25
<PAGE>
Exhibit
Number Description
10.5 Promissory note dated March 5, 1990 between Entree Corporation and
D.O.N. Incorporated (incorporated herein by reference to Exhibit
10.10 of Registrant's Form 10-K for the year ended March 28,
1992).
10.6 Agreement dated March 29, 1992 between D.O.N. Incorporated, Entree
Corporation and Atlanta Provision Company, Inc. (incorporated
herein by reference to Exhibit 10.1 of Registrant's Form 10-Q for
the period ended July 18, 1992).
10.7 Stock Pledge Agreement dated November 24, 1992 between Entree
Corporation and Barclays Business Credit, Inc. (incorporated
herein by reference to Exhibit 10.8 of Registrant's Form 10-K for
the year ended April 3, 1993).
10.8 1993 Nonqualified Stock Option Plan of Entree Corporation
(incorporated herein by reference to Exhibit 10.1 of Registrant's
Form 10-Q for the period ended October 16, 1993).*
10.9 Promissory Note dated June 1, 1994 between Atlanta Provision
Company, Inc. and D.O.N. Incorporated (incorporated herein by
reference to Exhibit 10.11 of Registrant's Form 10-K for the year
ended April 2, 1994).
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
* Represents a management contract or compensatory plan, contract
or arrangement in which a director or named executive officer of
the Company participated.
26
<PAGE>
ENTREE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Year Ended
-------------------------------
April 1, April 2, April 3,
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Valuation accounts deducted in balance
sheet from assets to which they apply:
Allowance for doubtful accounts:
Balance at beginning of period.......... $ 428 $ 649 $ 573
Additions -
Charged to costs and expenses......... 145 135 406
Deductions -
Bad debts written-off,
net of recoveries................... (156) (356) (330)
---- ---- ----
Balance at end of period................ $ 417 $ 428 $ 649
==== ==== ====
Allowance for unrealized losses on
inventories:
Balance at beginning of period........ $ 3 $ 201 $ 55
Additions -
Charged to costs and expenses....... 70 --- 156
Deductions -
Amounts written off on sale of
inventories....................... (52) (198) (10)
---- ---- ----
Balance at end of period................ $ 21 $ 3 $ 201
==== ==== ====
</TABLE>
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 this
29th day of June, 1995.
ENTREE CORPORATION
by: /s/ Richard Y. Fisher
Richard Y. Fisher, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Richard Y. Fisher President and Director
Richard Y. Fisher
/s/ R. Scott Miswald Principal Financial and
R. Scott Miswald Accounting Officer
/s/ G. Michael Coggins Director June 29, 1995
G. Michael Coggins
/s/ Sydney B. Lilly Director
Sydney B. Lilly
28
<PAGE>
WAIVER AND FOURTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
June 28, 1995
Atlanta Provision Company, Inc.
1400 West Marietta Street, N.W.
Atlanta, Georgia 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. ("Len-
der"), 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 Events of Default have
occurred under the Loan Agreement because of Borrower's failure to
satisfy certain financial covenants set forth therein (the
"Existing Defaults").
Borrower has requested that Lender (i) waive the Existing
Defaults 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 Events of Default
arising solely from the following:
a. the failure of Borrower to comply with the
$350,000 limitation of Capital Expenditures for fiscal
year 1995 as required under subsection 9.2(l) of the Loan
Agreement;
1
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 2
b. the failure of Borrower to achieve Consolidated
Adjusted Tangible Net Worth of $4,500,000 for the period
ended March 4, 1995 and $5,000,000 for the period ended
April 1, 1995 as required pursuant to subsection 9.3(a)
of the Loan Agreement;
c. the failure of Borrower to achieve Consolidated
Net Earnings From Operations of $568,000 for fiscal year
1995 as required under subsection 9.3(b) of the Loan
Agreement; and
d. the failure of Borrower to achieve Net Cash
Flow of $500,000 for the periods ending February 4, 1995,
March 4, 1995 and April 1, 1995 as required under
subsection 9.3(c) of the Loan Agreement.
The foregoing waivers are limited to the Events of Default
specified herein 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 1.1(j) of the Loan Agreement (Defined Terms
- - Bank) is deleted in its entirety and a new definition is
substituted therefor, as follows:
"Bank- Shawmut Bank Connecticut, N.A."
b. Section 3.3 of the Loan Agreement (Term of Agree-
ment) is amended to extend the Original Term (as therein defined)
to five (5) years from the date of the Loan Agreement, through and
including November 23, 1997.
c. Section 3.4 of the Loan Agreement (Termination) is
amended to add language to the end of the first sentence thereof,
as follows:
"; and one percent (1%) of the highest of the Average
Monthly Loan Balances outstanding pursuant to Section 2.1
during the Original Term if termination occurs during the
fifth twelve (12) month period of the Original Term
(November 24, 1996 through November 23, 1997)."
2
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 3
d. Section 9.2(l) of the Loan Agreements amended and
restated in its entirety, as follows:
"(l) Capital Expenditures. Make Capital Expen-
ditures (including without limitation by way of capital-
ized leases) which, in the aggregate, as to Borrower and
its Subsidiaries, exceed (i) $550,000 during fiscal year
1996, (ii) $500,000 during fiscal year 1997 and (iii)
$300,000 during the period from March 31, 1997 through
November 23, 1997."
e. Section 9.2(x) of the Loan Agreement (Leases) is
amended to add language to the end of the first sentence thereof,
as follows:
"for the fiscal year 1995 and One Million Nine Hundred
Thousand Dollars ($1,900,000) for each fiscal year
thereafter."
f. 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:
Period Amount
April 1, 1995 through $4,000,000
March 29, 1996
March 30, 1996 through $4,500,000
March 28, 1997
March 29, 1997 and thereafter $5,000,000"
g. 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 of not less than $400,000
for fiscal year 1996 and $500,000 for each fiscal year
thereafter."
h. Section 9.3(c) of the Loan Agreement (Net Cash Flow)
is amended and restated in its entirety, as follows:
3
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 4
"(c) Net Cash Flow. Achieve a Net Cash Flow on a
rolling thirteen (13) period basis (measured at the end
of each four (4) week period commencing April 2, 1995) of
(i) not in excess of negative One Hundred Thousand
Dollars (-$125,000) for the periods ending April 29, 1995
through July 22, 1995, (ii) not less than Zero Dollars
($0) for the periods ending August 19, 1995 through
October 14, 1995, (iii) not less than One Hundred
Thousand Dollars ($100,000) for the periods ending
November 11, 1995 through January 6, 1996 and (iv) not
less than Five Hundred Thousand Dollars ($500,000) for
all periods thereafter."
i. Section 12.10 of the Loan Agreement (Notice) is
hereby amended to delete the address for Lender in its entirety and
a new address is substituted therefor as follows:
"If to Lender: Shawmut Capital Corporation
20800 Swenson Drive
Suite 350
Waukesha, Wisconsin 53182
Attention: Robert J. Lund"
3. Effectiveness. This Waiver and Fourth Amendment to
Loan and Security Agreement shall be effective when duly executed
by both parties and delivered to Lender, together with a duly
executed Notice of Extension and Second Amendment to Junior Deed to
Secure Debt and Security Agreement in the form attached hereto as
Exhibit A. Except as expressly amended hereby, the Loan Agreement
shall remain in full force and effect as executed.
4
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 5
4. Counterparts. This Waiver and Fourth 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 June, 1995
ATLANTA PROVISION COMPANY, INC.
By: /s/ R. Scott Miswald
Its Secretary
5
<PAGE>
NOTICE OF EXTENSION AND SECOND AMENDMENT TO
JUNIOR DEED TO SECURE DEBT AND SECURITY AGREEMENT
THIS NOTICE OF EXTENSION AND SECOND AMENDMENT TO JUNIOR
DEED TO SECURE DEBT AND SECURITY AGREEMENT is dated as of June 28,
1995 and is by and between Atlanta Provision Company, Inc., a
Georgia corporation ("Grantor"), and Shawmut Capital Corporation
(successor in interest to Barclays Business Credit, Inc.)
("Lender").
RECITALS
A. Lender has made a revolving loan to Grantor and
extended other financial accommodations to Grantor in an aggregate
principal amount not to exceed $9,500,000.00, with final payment
thereof being due on or before November 23, 1996. Said loan and
other financial accommodations were made pursuant to a certain Loan
and Security Agreement dated as of November 23, 1992, as amended
(the "Loan Agreement"). Said revolving loan and other financial
accommodations are secured by a certain Junior Deed to Secure Debt
and Security Agreement dated as of November 23, 1992 and recorded
in Deed Book 16005, Page 027, Fulton County, Georgia Records (the
"Deed to Secure Debt"), as amended by a certain Notice of Extension
and First Amendment to Junior Deed to Secure Debt and Security
Agreement dated as of June 1, 1994 and recorded in Deed Book 18401,
Page 297, Fulton County, Georgia Records. A legal description of
the real estate encumbered by the Deed to Secure Debt is attached
hereto as Exhibit A.
B. Lender and Grantor are entering into a certain
Waiver and Fourth Amendment, under Loan and Security Agreement (the
"Amendment") amending the terms of the Loan Agreement. Among other
things, the maturity date of said revolving loan and other
financial accommodations is being extended to November 23, 1997.
AGREEMENTS
1. All references to the "Loan Agreement" in the Deed
to Secure Debt are hereby modified to refer to the Loan Agreement,
as amended by the Amendment, and as otherwise now or hereafter
amended from time to time.
2. All references to "November 23, 1996" in the Deed to
Secure Debt are hereby modified to refer to November 23, 1997.
3. Except as expressly modified hereby, the Deed to
Secure Debt shall remain in full force and effect as originally
executed. The execution and delivery hereof shall not constitute
a novation of the lien or security title of the Deed to Secure
Debt, which instrument shall retain its priority as originally
filed for record.
6
<PAGE>
IN WITNESS WHEREOF, Grantor and Lender have executed this
instrument under seal by and through their duly authorized
representatives as of the day and year first above written.
GRANTOR:
ATLANTA PROVISION COMPANY,
ATTEST: INC., a Georgia corporation
R. Scott Miswald By: Robert J. Zeman
Its Secretary Its CFO
Signed, sealed and delivered
in the presence of:
Cheryl Krajci
Unofficial Witness
Scott Martin
Notary Public
My Commission Expires:
06/28/98
_______________________________
(SEAL)
(Signatures continued on next page)
7
<PAGE>
LENDER:
ATTEST: SHAWMUT CAPITAL CORPORATION
_______________________________ By_____________________________
Its____________________________ Its__________________________
Signed, sealed and delivered
in the presence of:
_______________________________
Unofficial Witness
_______________________________
Notary Public
My Commission Expires:
_______________________________
(SEAL)
THIS INSTRUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
Kimberly Slotky Reich, Esq.
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
8
<PAGE>
EXHIBIT 22
ENTREE CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
State of
Subsidiaries of the Registrant Incorporation
- ------------------------------ -------------
Atlanta Provision Company, Inc................................. Georgia
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to Entree Corporation 1993 Nonqualified
Stock Option Plan of Entree Corporation and in the related Prospectus of
our report dated June 2, 1995, except for Note 3 as to which the date is
June 28, 1995, with respect to the consolidated financial statements and
schedules of Entree Corporation included in the Annual Report (Form 10-K)
for the fiscal year ended April 1, 1995.
Milwaukee, Wisconsin ERNST & YOUNG LLP
June 28, 1995
<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
52 WEEKS ENDED APRIL 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-01-1995
<PERIOD-START> APR-03-1995
<PERIOD-END> APR-01-1995
<CASH> 1653
<SECURITIES> 0
<RECEIVABLES> 10075
<ALLOWANCES> (417)
<INVENTORY> 4343
<CURRENT-ASSETS> 15916
<PP&E> 7236
<DEPRECIATION> (3863)
<TOTAL-ASSETS> 20569
<CURRENT-LIABILITIES> 9029
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<COMMON> 80
0
0
<OTHER-SE> (1402)
<TOTAL-LIABILITY-AND-EQUITY> 20569
<SALES> 215141
<TOTAL-REVENUES> 215235
<CGS> 210828
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<OTHER-EXPENSES> 4198
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<INTEREST-EXPENSE> 953
<INCOME-PRETAX> (779)
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<EPS-PRIMARY> (.10)
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</TABLE>