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: July 20, 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 August 15, 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>
July 20, March 30,
1996 1996
---------- ---------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 1,284 $ 903
Receivables 9,994 8,848
Inventories 4,254 4,541
Other current assets 400 231
------- -------
Total current assets 15,932 14,523
Property and equipment 7,749 7,566
Less accumulated depreciation (4,572) (4,396)
------- -------
3,177 3,170
Other assets 348 355
------- -------
$ 19,457 $ 18,048
======= =======
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable $ 7,252 $ 7,893
Accrued liabilities 593 626
Revolving line of credit 5,565 2,996
Current portion of long-term debt 64 103
------- -------
Total current liabilities 13,474 11,618
Long-term debt 781 804
Preferred stock of subsidiary owned by parent 7,400 7,400
Shareholders' deficit
Common stock 80 80
Additional paid-in capital 15,296 15,273
Accumulated deficit (17,574) (17,127)
------- -------
Total shareholders' deficit (2,198) (1,774)
------- -------
$ 19,457 $ 18,048
======= =======
</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>
16 Weeks Ended
July 20, July 22,
1996 1995
-------- --------
<S> <C> <C>
Net sales $ 75,863 $ 75,287
Other income 2 7
------- -------
75,865 75,294
Cost of sales 74,854 73,924
Selling and administrative expenses 1,190 1,285
------- -------
Operating earnings (loss) (179) 85
Interest expense (268) (325)
Equity in loss of unconsolidated
subsidiary --- (28)
------- -------
Net loss $ (447) $ (268)
======= =======
Loss per common share $ (.06) $ (.03)
======= =======
Weighted average number of common shares
outstanding 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>
16 Weeks Ended
July 20, July 22,
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net loss $ (447) $ (268)
Reconciliation of net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 184 207
Provision for doubtful accounts 40 40
Equity in loss of unconsolidated
subsidiary --- 28
Change in operating assets and
liabilities (1,742) (173)
------- -------
Net cash used by operating activities (1,965) (166)
Investing activities:
Purchases of property and equipment (184) (138)
Financing activities:
Net change in line of credit 2,569 102
Payments of long-term debt (62) (11)
Capital contribution from parent 23 ---
Change in notes payable to parent --- 32
------- -------
Net cash provided by financing activities 2,530 123
------- -------
Increase (decrease) in cash 381 (181)
Cash at beginning of period 903 1,653
------- -------
Cash at end of period $ 1,284 $ 1,472
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Entree Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
July 20, 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 sixteen weeks ended July 20, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 29, 1997. 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 March 30, 1996.
The computation of loss per common share is based on the weighted
average number of common shares.
NOTE 2 - Preferred Stock of Subsidiary owned by Parent
The Diana Corporation ("Diana") owns 7,400,000 shares of Atlanta
Provision Company, Inc's ("APC") Series A non-voting preferred stock. The
preferred stock earns dividends at an annual rate of $.10 per share.
Dividends on 6,000,000 shares of preferred stock are cumulative from April 1,
1992 and payable quarterly commencing July 1, 1995. Dividends on 1,400,000
shares of preferred stock are cumulative from and payable quarterly
commencing April 1, 1996. No dividends have been declared by APC. At July
20, 1996, dividends in arrears on the preferred stock were $2,585,000. 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. Diana's investment in APC's preferred stock is reflected within
the accompanying balance sheet as preferred stock of subsidiary owned by
parent.
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
first quarter of fiscal 1997 and 1996 (in thousands):
1997 1996
---- ----
Beef 33,666 36,056
Pork 15,258 16,500
Other 26,939 22,731
------ ------
$ 75,863 $ 75,287
====== ======
For the sixteen weeks ended July 20, 1996, APC's overall volume (based
on tonnage) decreased by .2% and net sales increased $576,000 or .8% over
fiscal 1996 first quarter net sales.
For the sixteen weeks ended July 20, 1996, gross profit decreased by
$354,000 or 26.0% from the same period in fiscal 1996. Gross profit as a
percentage of net sales was 1.3% in the first quarter of fiscal 1997 as
compared to 1.8% in fiscal 1996. The decrease in gross profit and the gross
profit percentage for the sixteen weeks ended July 20, 1996 as compared to
the same period of time last year is primarily due to the impact of higher
grain prices resulting in an increase in the supply of beef and lower beef
sales prices. In addition, pork sales and gross profit decreased due to the
loss of a customer and the effect of an increase in the selling price of
pork.
For the sixteen weeks ended July 20, 1996, selling and administrative
expenses decreased $95,000 or 7.4% from the same period in fiscal 1996. This
decrease is primarily attributable to lower selling expenses due to a
reduction in the number of sales employees. As a percentage of net sales,
selling and administrative expenses were 1.6% in the first quarter of fiscal
1997, compared to 1.7% in the first quarter of fiscal 1996.
For the sixteen weeks ended July 20, 1996, interest expense decreased by
$57,000 from the same period in fiscal 1996. The decrease is primarily
attributable to the elimination of all borrowings by the Company and APC to
Diana at the end of fiscal 1996. On March 30, 1996, Diana Acquired 1.4
million shares of APC's preferred stock in exchange for the cancellation of
$1.4 million promissory note from APC. In addition on March 30, 1996, Diana
made a capital contribution of $683,000 to the Company by discharging the
Company from a $683,000 promissory note.
Liquidity and Capital Resources
The Company recorded cash used by operating activities of $1,965,000
during the first quarter of fiscal 1997 as compared to cash used by operating
activities of $166,000 for the same period of time in fiscal 1996. The cash
outflow from operating activities during the first quarter of fiscal 1997 is
primarily attributable to the following changes in operating assets and
liabilities: a) receivables increased by $1,146,000 or 13% from March 30,
1996; b) inventories decreased $287,000 or 6.3% from March 30, 1996 and c)
accounts payable decreased $641,000 or 8.1% from March 30, 1996. The
5
<PAGE>
increase in accounts receivable is primarily due to an increase in accounts
receivable from a large customer resulting from late payments. This customer
has substantially eliminated its past due receivables during August 1996.
Capital expenditures for property and equipment during the sixteen weeks
ended July 20, 1996 were $184,000. Fiscal 1997 capital expenditures are
limited to $500,000 pursuant to restrictions in APC's credit facility.
APC's credit facility provides a revolving line of credit of up to
$9,500,000 with interest at the prime rate plus 2% through November 1997. A
$2 million letter of credit facility is included within the total credit
facility. At July 20, 1996, APC borrowed $5,565,000 and had letters of
credit of $2,000,000 issued on its behalf. At July 20, 1996, APC had
available unused borrowing capacity of $686,000. APC's revolving line of
credit has the following financial covenants for fiscal 1997: minimum
tangible net worth of $3,900,000 through March 28, 1997 and $4,400,000 on
March 29, 1997, a net loss of not greater than $40,000 and net cash flow on
a rolling 13-period basis (measured at the end of each four week period)
ranging from $385,000 to $500,000. APC violated a financial covenant
requiring net cash flow of $400,000, $385,000 and $405,000 for the 52 week
periods ended June 22, 1996, July 20, 1996 and August 17, 1996, respectfully.
The lender has not waived these violations. APC and the lender are presently
in discussions regarding this matter. In addition, APC has received a
commitment, subject to certain conditions, from a new lender to refinance its
revolving line of credit. The proposed credit facility provides for a
revolving line of credit of up to $10,000,000 with certain terms anticipated
to be more favorable than the present credit facility. The new credit
facility is anticipated to close around September 30, 1996.
In addition, in June 1996 Diana extended an unsecured line of credit of
$1 million to APC at prime plus 2%. Borrowings under this line of credit are
payable on demand. At July 20, 1996, APC had no borrowings under this line
of credit.
In August 1996, all negotiations and agreements with third parties
concerning the sale of APC were terminated. Diana is investigating how it
can be restructured in order to maximize shareholder value. Diana's
management is currently looking at several alternative approaches, based on
separating operating units by industry type into independent publicly traded
companies.
6
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 - Demand Promissory Note dated June 28, 1996 from
Atlanta Provision Company to The Diana Corporation
10.2 - Letter dated September 3, 1996 from Sanwa Business
Credit Corporation to The Diana Corporation
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: September 3, 1996
DEMAND PROMISSORY NOTE
$1,000,000.00 June 28, 1996
For money hereafter borrowed and value received, ATLANTA
PROVISION COMPANY, INC., a Georgia corporation ("Payor"), promises
to pay on demand, to the order of The Diana Corporation, a Delaware
corporation ("Payee"), the principal sum of One Million and 00/100
($1,000,000.00) Dollars, or if less, the aggregate unpaid principal
amount as may be borrowed by Payor from Payee from time to time
hereafter with Payee's consent, as evidenced by the advance of
funds by Payee, and to pay interest from the date hereof until
repayment of the principal amount outstanding at the prime rate
plus 2 percent, per anum. Interest shall be payable on the last
day of each month and computed on the basis of a 360-day year.
Should the interest not be so paid it shall, at the option of
the Payee, become a part of the principal and thereafter bear like
interest as the principal. In such event and at the option of
Payee, all amounts due shall bear interest at the prime rate plus
four (4 percent) percent per anum computed on the basis of a 360-
day year. "Prime Rate" shall mean the highest "prime rate" of
interest quoted, from time to time, by The Wall Street Journal, as
the base rate on corporate loans at large United States money
center commercial banks. In the event of payment by Payor to Payee
of less than the total amount of the loan outstanding, including
principal, interest, and costs of collection, Payee shall have the
option of applying said payment to the outstanding amount in the
manner Payee, in its sole discretion, deems fit. In the event of
default, the holder of the note shall be entitled to receive from
Payor all of its costs of collection, both before and after
payment, including, without limitation, all attorneys fees.
This note shall become immediately due and payable with
interest computed to date in the event of insolvency of, general
assignment by, petition in bankruptcy by or against Payor.
All payments of principal and interest hereunder shall be made
in lawful money of the United States of America in immediately
available funds transmitted via wire transfer to Nations Bank, ABA
Number 061-0000-52, for the account of The Diana Corporation,
Account Number 01-080-24-069, or at such other address as the Payee
may from time to time designate by notice to Payor. Full or
partial pre-payment of this note is permitted at any time without
penalty.
Payor hereby waives all notices except any expressly provided
for herein (including initial demand for payment of principal),
other demands for payments, notice of non-payment, presentation,
notice of dishonor, protest or notice of protest. This note shall
be governed by and construed in accordance with the laws of the
State of Wisconsin.
IN WITNESS WHEREOF, Payor has caused this note to be executed
this 28th day of June, 1996.
ATTEST PAYOR
ATLANTA PROVISION COMPANY, INC.
/s/ Jeanne M. Saunders /s/ R. Scott Miswald, Secretary
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
September 3, 1996
Mr. Donald E. Runge, President
The Diana Corporation
8200 W. Brown Deer Road, Ste 200
Milwaukee, Wisconsin 53223
FAX (414) 355-0815
Re: Atlanta Provision Company ("Atlanta")/Proposal Letter and Term
Sheet dated August 13, 1996 (copies attached, hereinafter
referred to collectively as the "Proposal")
Dear Mr. Runge:
This will confirm our conversation of September 3, 1996. Subject
to the terms and conditions set forth in the above Proposal (by
reference, incorporated herein and made a part hereof), Sanwa
Business Credit Corporation has committed to close on the financing
accommodation contemplated therein on or before September 30, 1996.
Very truly yours,
SANWA BUSINESS CREDIT CORPORATION
/s/ George M. Adams
First Vice President
(312) 853-1369
<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 16
WEEKS ENDED JULY 20, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUL-20-1996
<CASH> 1284
<SECURITIES> 0
<RECEIVABLES> 10424
<ALLOWANCES> (430)
<INVENTORY> 4254
<CURRENT-ASSETS> 15932
<PP&E> 7749
<DEPRECIATION> (4572)
<TOTAL-ASSETS> 19457
<CURRENT-LIABILITIES> 13474
<BONDS> 781
0
0
<COMMON> 80
<OTHER-SE> (2278)
<TOTAL-LIABILITY-AND-EQUITY> 19457
<SALES> 75863
<TOTAL-REVENUES> 75865
<CGS> 74854
<TOTAL-COSTS> 74854
<OTHER-EXPENSES> 1190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 268
<INCOME-PRETAX> (447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (447)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
