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 6, 1996
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, 1996, 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>
January 6, April 1,
1996 1995
---------- --------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 1,220 $ 1,653
Receivables 8,507 9,658
Inventories 4,758 4,343
Other current assets 255 262
------- -------
Total current assets 14,740 15,916
Property and equipment 7,455 7,236
Less accumulated depreciation (4,267) (3,863)
------- -------
3,188 3,373
Intangible assets 858 881
Other assets 355 399
------- -------
$ 19,141 $ 20,569
======= =======
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Deficit
<S> <C> <C>
Current liabilities
Accounts payable $ 7,981 $ 8,089
Accrued liabilities 802 535
Current portion of long-term debt 124 405
------- -------
Total current liabilities 8,907 9,029
Notes payable to parent 2,065 1,993
Long-term debt 3,810 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 (16,311) (15,992)
------- -------
Total shareholders' deficit (1,641) (1,322)
------- -------
$ 19,141 $ 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 40 Weeks Ended
------------------------ -----------------------
January 6, January 7, January 6, January 7,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 53,753 $ 47,232 $ 182,709 $ 158,458
Other income 19 80 40 93
------ ------ ------- -------
53,772 47,312 182,749 158,551
Cost of sales 52,690 45,993 179,218 154,720
Selling and administra-
tive expenses 896 973 3,072 3,135
------ ------ ------- -------
Operating earnings 186 346 459 696
Interest expense (219) (197) (776) (686)
Equity in earnings (loss)
of unconsolidated
subsidiary 19 (52) (2) (35)
------ ------ ------- -------
Net earnings (loss) $ (14) $ 97 $ (319) $ (25)
====== ====== ======= =======
Earnings (loss) per
common share $ .00 $ .01 $ (.04) $ .00
====== ====== ======= =======
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>
40 Weeks Ended
------------------------
January 6, January 7,
1996 1995
---------- ---------
<S> <C> <C>
Operating activities:
Net loss $ (319) $ (25)
Reconciliation of net loss to net cash
provided by operating activities:
Depreciation and amortization 495 451
Provision for doubtful accounts 145 100
Equity in loss of unconsolidated
subsidiary 2 35
Change in operating assets and
liabilities 809 1,396
------- -------
Net cash provided by operating activities 1,132 1,957
Investing activities:
Purchases of property and equipment (297) (229)
Financing activities:
Payments of long-term debt (96) (129)
Net change in line of credit (1,244) (1,426)
Change in notes payable to parent 72 59
------- -------
Net cash used by financing activities (1,268) (1,496)
------- -------
Increase (decrease) in cash (433) 232
Cash at beginning of period 1,653 1,031
------- -------
Cash at end of period $ 1,220 $ 1,263
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Entree Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
January 6, 1996
(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 6, 1996 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 January 6, 1996
and April 1, 1995 (in thousands):
January 6, April 1,
1996 1995
---------- --------
Long-term
---------
Unsecured term note payable, interest at
the prime rate plus 2%, due on demand $ 665 $ 593
Unsecured term note payable, interest at
the prime rate plus 2.5%, due on demand 1,400 1,400
----- -----
$ 2,065 $ 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 $52,000 and $48,000 for the
twelve weeks ended January 6, 1996 and January 7, 1995, respectively, and
$175,000 and $149,000 for the forty weeks also ended January 6, 1996 and
January 7, 1995, respectively.
4
<PAGE>
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 January 6, 1996,
dividends in arrears on the preferred stock were $2,250,000. 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.
5
<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 for fiscal 1996 and 1995 (in thousands):
Third Quarter Year-To-Date
-------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Beef $ 23,427 $ 22,512 $ 85,700 $ 79,410
Pork 9,824 8,790 36,793 31,450
Other 20,502 15,930 60,216 47,598
------ ------ ------- -------
$ 53,753 $ 47,232 $ 182,709 $ 158,458
====== ====== ======= =======
For the twelve weeks ended January 6, 1996, APC's overall volume (based
on tonnage) increased by 1.6% and net sales increased $6,521,000 or 13.8%
over fiscal 1995 third quarter net sales. For the forty weeks ended January
6, 1996, APC's overall volume (based on tonnage) increased by 5.3% and net
sales increased $24,251,000 or 15.3% over fiscal 1995 sales for the same
period of time. 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 third quarter of fiscal 1996
accounted for approximately 25% of APC's net sales. Year-to-date fiscal
1996 sales to this customer accounted for more than 25% of APC's net sales.
For the twelve weeks ended January 6, 1996, gross profit decreased by
$176,000 or 14.2% from the corresponding period in fiscal 1995. Gross profit
as a percentage of net sales was 2.0% in the third quarter of fiscal 1996 as
compared to 2.6% in fiscal 1995. For the forty weeks ended January 6, 1996,
gross profit decreased by $247,000 or 6.6% from the corresponding period in
fiscal 1995. Gross profit as a percentage of net sales for the forty weeks
ended January 6, 1996 was 1.9% as compared to 2.4% for the same period of
time in fiscal 1995. The decrease in gross profit and the gross profit
percentage for the twelve and forty weeks ended January 6, 1996 as compared
to the same period of time in fiscal 1995 is primarily due to lower margins
on sales to the customer added in December 1994.
For the twelve weeks ended January 6, 1996, selling and administrative
expenses decreased $77,000 or 7.9% from the same period in fiscal 1995.
Selling and administrative expenses as a percentage of net sales were 1.7% in
the third quarter of fiscal 1996 as compared to 2.1% in fiscal 1995. For the
forty weeks ended January 6, 1996, selling and administrative expenses
decreased $63,000 or 2.0% from the same period in fiscal 1995. Selling and
6
<PAGE>
administrative expenses as a percentage of net sales were 1.7% for the forty
weeks ended January 6, 1996 as compared to 2.0% for the same period in fiscal
1995. The decrease in these expenses in the third quarter and year-to-date
fiscal 1996 is primarily due to lower selling expenses attributable to a
reduction in the number of sales employees partially offset by increased
administration payroll and bad debt expenses.
For the twelve and forty weeks ended January 6, 1996, interest expense
increased by $22,000 and $90,000, 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.
Liquidity and Capital Resources
The Company recorded cash provided by operating activities of $1,132,000
during the forty weeks ended January 6, 1996 as compared to cash provided by
operating activities of $1,957,000 for the same period of time in fiscal
1995. The cash provided from operating activities during the forty weeks
ended January 6, 1996 is primarily attributable to the following changes in
operating assets and liabilities: a) receivables decreased by $1,151,000 or
11.9% from April 1, 1995; b) inventories increased $415,000 or 9.6% from
April 1, 1995 and c) accounts payable decreased $108,000 or 1.3% from April
1, 1995.
Capital expenditures for property and equipment during the forty weeks
ended January 6, 1996 were $297,000. 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 January 6, 1996, APC borrowed $2,997,000 and had letters of
credit of $2,000,000 issued on its behalf. At January 6, 1996, APC had
available unused borrowing capacity of $3,678,000. 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 $2,065,000 in the aggregate as of January 6, 1996. 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.
7
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company for the
quarter covered by this report.
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: February 9, 1996
8
<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
40 WEEKS ENDED JANUARY 6, 1996 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> MAR-30-1996
<PERIOD-START> OCT-15-1995
<PERIOD-END> JAN-06-1996
<CASH> 1220
<SECURITIES> 0
<RECEIVABLES> 8884
<ALLOWANCES> (378)
<INVENTORY> 4758
<CURRENT-ASSETS> 14740
<PP&E> 7455
<DEPRECIATION> (4267)
<TOTAL-ASSETS> 19141
<CURRENT-LIABILITIES> 8907
<BONDS> 3810
<COMMON> 80
0
0
<OTHER-SE> (1721)
<TOTAL-LIABILITY-AND-EQUITY> 19141
<SALES> 182709
<TOTAL-REVENUES> 182749
<CGS> 179218
<TOTAL-COSTS> 179218
<OTHER-EXPENSES> 3072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 776
<INCOME-PRETAX> (319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.00)
</TABLE>
