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 March 30, 1996
{ } 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 10, 1996 was approximately $98,000.
As of June 1, 1996 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 1996, 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. For the
fiscal year ended March 30, 1996, Sam's Club and Cub Foods each
accounted for more than 10% of APC's net sales. No other single
customer accounted for more than 10% of net sales during the year ended
March 30, 1996. The products purchased for distribution are supplied by
food manufacturers and processors, the two largest of which accounted
for approximately 37% 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
<PAGE>
EMPLOYEES OF REGISTRANT
At March 30, 1996, the Company had 245 employees of whom 185 are
truck drivers and warehousemen, some of whom 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 1996.
2
<PAGE>
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:
Fiscal 1996 Fiscal 1995
------------ ------------
High Low High Low
---- --- ---- ---
1st Quarter ............ 3/16 1/32 7/16 1/4
2nd Quarter ............ 3/16 3/64 9/32 1/16
3rd Quarter ............ 3/4 1/32 3/32 1/16
4th Quarter ............ 9/16 1/16 3/32 3/32
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.
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
May 24, 1996 was 776.
3
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
ENTREE CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
March 30, April 1, April 2, April 3, March 28,
1996(3) 1995 1994 1993(1)(2) 1992
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales...............$236,108 $215,141 $215,333 $200,737 $156,590
Net earnings (loss)
before accounting
change................. (1,135) (779) 218 (80) (2,155)
Net earnings (loss)..... (1,135) (779) 480 (80) (2,155)
Net earnings (loss) per
common share before
accounting change...... (.14) (.10) .03 (.01) (.27)
Net earnings (loss)
per common share....... (.14) (.10) .06 (.01) (.27)
Weighted average
number of common
shares outstanding..... 8,000 8,000 8,320 8,000 8,000
Dividends per share..... --- --- --- --- ---
Balance Sheet Data:
Working capital.........$ 2,905 $ 2,887 $ 3,585 $ 2,535 $ 1,176
Total assets............ 18,048 20,569 21,329 18,070 19,005
Long-term debt.......... 804 2,862 2,980 1,966 6,455
Total liabilities....... 19,822 21,891 21,872 19,093 19,948
Shareholders' deficit... (1,774) (1,322) (543) (1,023) (943)
Net tangible shareholders'
deficit (4).............. (1,774) (2,203) (1,453) (1,966) (1,923)
<FN>
(1) Fiscal year ended April 3, 1993 includes 53 weeks; all other fiscal
years include 52 weeks.
(2) 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.
(3) In fiscal 1996, Diana entered into an agreement with APC to purchase 1.4
million shares of APC non-voting preferred stock in exchange for the
cancellation of $1.4 million of notes payable owed by APC to Diana.
On March 30, 1996, Diana made a capital contribution to the Company of
$683,000 by discharging the Company from any obligation to repay Diana
for amounts advanced to the Company under a promissory note dated March
5, 1990.
(4) Net tangible shareholders' deficit consists of shareholders' deficit
adjusted for goodwill.
</FN>
</TABLE>
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 30, 1996 VERSUS
APRIL 1, 1995
The following is a summary of sales by significant product line for
fiscal 1996 and 1995 (in thousands):
1996 1995
-------- --------
Beef $ 109,785 $ 107,055
Pork 46,822 42,700
Other 79,501 65,386
------- -------
$ 236,108 $ 215,141
======= =======
Fiscal 1996 net sales increased $20,967,000 or 9.7% over fiscal 1995 net
sales. APC's overall volume (based on tonnage) during this period increased
by 3.4%. The increase in APC's net sales is primarily attributable to
increased business resulting from the addition of Sam's Club as a customer in
December 1994. Approximately 36% of net sales for the year ended March 30,
1996 were made to two customers.
Fiscal 1996 gross profit increased by $220,000 or 5.1% over fiscal 1995
primarily due to the increase in APC's sales. Fiscal 1996 was positively
impacted, by comparison to fiscal 1995, as a result of significantly higher
warehouse and transportation payroll expenses and inventory losses incurred
by APC during the fourth quarter of fiscal 1995 due to the addition of Sam's
Club as a customer. However, for the year, gross profit as a percentage of
net sales was 1.9% in fiscal 1996 as compared to 2.0% in fiscal 1995.
In fiscal 1996, selling and administrative expenses decreased by
$172,000 or 4.1% from fiscal 1995. As a percentage of net sales, selling and
administrative expense was 1.7% in fiscal 1996 as compared to 2.0% in fiscal
1995. The decrease in selling and administrative expenses is primarily due
to lower selling expenses attributable to a reduction in the number of sales
employees partially offset by increased administrative payroll and bad debt
expenses.
The Company is exploring options with respect to its investment in APC,
including a possible sale of APC. As a result of recent efforts to sell APC,
the Company has concluded there has been a decrease in the market value of
APC. During the fourth quarter of fiscal 1996, the Company concluded that an
impairment of goodwill has occurred and wrote off the remaining goodwill of
$852,000 resulting from the acquisition of APC. The goodwill write off has
no effect on the Company's cash flow or tangible shareholders' deficit.
Excluding the write off of goodwill, operating earnings improved to $545,000
in fiscal 1996 compared to $209,000 in fiscal 1995.
In fiscal 1996, interest expense increased by $27,000 or 2.8% over
fiscal 1995. The increase is primarily attributable to increased interest
rates in fiscal 1996 as compared to fiscal 1995.
In fiscal 1996, non-operating income consisted of $145,000 of non-
refundable cash deposits received from a potential buyer of APC whose
contract to purchase lapsed.
5
<PAGE>
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 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% from 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 2.0% 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 2.0% 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 incurred increased warehouse and transportation
payroll expenses and inventory losses. 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 Sam's Club as a new customer. Sam's Club
generated a significant amount of volume at margins that were lower than
APC's average historical margins. Initially, the addition of this new
business increased the operational costs 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash flow from operating activities of $939,000 as
compared to cash provided by operating activities of $3,595,000 in fiscal
1995. The decrease in cash flow is primarily attributable to less cash
provided by the net change in operating assets and liabilities. Receivables
6
<PAGE>
decreased $810,000 or 8.4% over fiscal 1995 despite increased sales in fiscal
1996 primarily because fiscal 1995 accounts receivable were unusually high at
April 1, 1995 due to the addition of Sam's Club as a customer in December
1994. Inventory increased by $198,000 or 4.6% from fiscal 1995 due to normal
fluctuations. Accounts payable decreased by $196,000 or 2.4% from fiscal
1995.
Capital expenditures for property and equipment during fiscal 1996 were
$408,000 consisting primarily of purchases by APC to improve its distribution
facility. Fiscal 1997 capital expenditures are limited to $500,000 pursuant
to restrictions in APC's credit facility. The Company estimates that APC's
fiscal 1997 capital expenditures will be approximately $500,000, primarily
for further improvements to APC's distribution facility and the purchase of
equipment.
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 March 30, 1996, APC borrowed $2,996,000 and had
letters of credit of $2,000,000 issued on its behalf. At March 30, 1996, APC
had available unused borrowing capacity of $3,754,000 based upon eligible
assets. APC's Loan and Security Agreement ("Agreement") contains financial
covenants requiring a minimum level of tangible net worth, earnings and net
cash flow. At March 30, 1996 APC failed to satisfy the earnings covenant due
to the write-off of goodwill. In June 1996, APC and its lender entered into
a waiver and amendment agreement relating to the Agreement in order to avoid
violating certain financial covenants at March 30, 1996 and in fiscal 1997.
The amended Agreement provides for the following financial covenants during
fiscal 1997: minimum tangible net worth of $3,900,000, a net loss of not
greater than $40,000 and minimum net cash flow on a rolling thirteen period
basis (measured at the end of each four week period) ranging from $385,000 to
$500,000. In addition, in June 1996 Diana extended an unsecured line of
credit of $1 million to APC at prime plus 2%. There were no borrowings by
APC under this line at June 27, 1996. At June 27, 1996, APC had unused
borrowing capacity of $903 under the amended Agreement. Based upon APC's
projections, the Company believes that APC will have adequate working capital
for fiscal 1997. At June 27, 1996, based upon the representations and
projections of APC's management, the Company believes that APC will meet the
financial covenants during fiscal 1997 or will obtain any required waivers
from the lender. Because the Agreement provides for repayment of borrowings
after a 90 day notice from the lender, the indebtedness is classified as
short term. The fiscal 1995 financial statements have been reclassified to
conform to fiscal 1996 presentation.
On March 30, 1996, Diana made a capital contribution to the Company of
$683,000 by discharging the Company from any obligation to repay Diana for
amounts advanced to the Company under a promissory note dated March 5, 1990.
In the event the Company at a future date receives cash or other property
from the sale of stock or assets of APC, the Company will pay to Diana the
lesser of (a) $683,000 plus interest thereon from March 30, 1996 at the Prime
Rate plus two percent or (b) the amount of the cash or value of the property
received.
On March 30, 1996, Diana entered into an agreement with APC to purchase
1.4 million shares of APC's non-voting preferred stock in exchange for the
cancellation of $1.4 million of notes payable owed by APC to Diana. The
preferred stock earns dividends at an annual rate of $.10 per share,
cumulative from April 1, 1996. Dividends are payable quarterly commencing
April 1, 1996. The preferred stock may be redeemed at any time at APC's
option, for $1.00 per share plus accrued and unpaid dividends. The
7
<PAGE>
declaration of dividends and redemption of preferred stock is restricted (see
Note 3).
FORWARD LOOKING STATEMENTS
The Company's estimate of fiscal 1997 capital expenditures, the
statements that the Company believes APC will have adequate working capital
for fiscal 1997 and will meet financial covenants in its loan agreement or
obtain any required waivers during fiscal 1997 and the reference to a
possible sale of APC, may be considered "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Actual
results or developments may differ materially from those contained in the
forward looking statements. Factors which may cause such a difference to
occur include but are not limited to (i) whether extraordinary repairs are
needed to APC's distribution facility, (ii) whether the Company can maintain
its current customer base, (iii) whether the Company can control the
operating expenses which began to increase in fiscal 1994, (iv) product
demand, competition, the cost of beef, pork and other products, and industry
conditions, (v) whether vendors continue to provide credit to the Company on
satisfactory terms, (vi) whether the Company's secured lender exercises its
demand right, (vii) whether the Company can come to terms with a buyer who is
able to finance a possible acquisition of APC and (viii) whether other
competitors enter the Company's marketplace.
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. The adoption of this pronouncement had
no impact on cash flows.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
This statement is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company believes that the adoption of
this standard will not have a material effect on its consolidated results of
operations or financial position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and is
effective for fiscal years beginning after December 15, 1995. The Company
has decided to continue accounting for employee stock compensation under
currently existing accounting principles, but will disclose pro forma results
using the new standard's alternative accounting treatment as is permitted
under SFAS No. 123.
IMPACT OF INFLATION
Inflation has not had a significant impact on APC's net sales or results
of operations for the three most recent fiscal years.
8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PAGE
Report of Price Waterhouse LLP, Independent Accountants...... 10
Report of Ernst & Young LLP, Independent Auditors............ 11
Consolidated Balance Sheets - March 30, 1996 and
April 1, 1995............................................ 12
Consolidated Statements of Operations - Fiscal Years
Ended March 30, 1996, April 1, 1995 and
April 2, 1994............................................ 13
Consolidated Statements of Shareholders' Deficit -
Fiscal Years Ended March 30, 1996,
April 1, 1995 and April 2, 1994.......................... 14
Consolidated Statements of Cash Flows - Fiscal Years
Ended March 30, 1996, April 1, 1995 and
April 2, 1994............................................ 15
Notes to Consolidated Financial Statements.................... 16
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Entree Corporation
In our opinion, the consolidated financial statements listed under Item
14(a)(1) and (2) appearing in this report present fairly, in all material
respects, the financial position of Entree Corporation and its subsidiary at
March 30, 1996, and the results of their operations and their cash flows for
the year in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
June 27, 1996
10
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Entree Corporation
We have audited the accompanying consolidated balance sheet of Entree
Corporation and subsidiaries (the Company) as of April 1, 1995, and the
related consolidated statements of operations, shareholders' deficit and cash
flows for each of the two years in the period ended April 1, 1995. Our
audits also included the financial statement schedule for each of the two
years in the period ended April 1, 1995 listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 the consolidated results of
its operations and its cash flows for each of the two years in the period
ended April 1, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 8 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
11
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
March 30, April 1,
1996 1995
-------- -------
ASSETS
<S> <C> <C>
Current assets
Cash.............................................. $ 903 $ 1,653
Receivables, less allowance for doubtful
accounts of $417 in 1996 and 1995............... 8,848 9,658
Inventories....................................... 4,541 4,343
Other current assets.............................. 231 262
------ ------
Total current assets...................... 14,523 15,916
Property and equipment
Land.............................................. 230 230
Building and improvements......................... 4,702 4,400
Equipment......................................... 2,634 2,606
------ ------
7,566 7,236
Less accumulated depreciation..................... (4,396) (3,863)
------ ------
3,170 3,373
Goodwill, net....................................... --- 881
Other assets........................................ 355 399
------ ------
$18,048 $20,569
====== ======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable.................................. $ 7,893 $ 8,089
Accrued liabilities............................... 626 535
Revolving line of credit.......................... 2,996 4,241
Current portion of long-term debt................. 103 164
------ ------
Total current liabilities.................... 11,618 13,029
Notes payable to parent............................. --- 1,993
Long-term debt...................................... 804 869
Preferred stock of subsidiary owned by parent....... 7,400 6,000
Commitments (Note 5)................................
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.......................... 15,273 14,590
Accumulated deficit................................. (17,127) (15,992)
------ ------
Total shareholders' deficit..................... (1,774) (1,322)
------ ------
$18,048 $20,569
====== ======
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
--------------------------------
March 30, April 1, April 2,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales.............................. $236,108 $215,141 $215,333
Other income........................... 38 94 112
------- ------- -------
236,146 215,235 215,445
Cost of sales.......................... 231,575 210,828 210,302
Selling and administrative expenses.... 4,026 4,198 4,138
Write-off of goodwill.................. 852 --- ---
------- ------- -------
Operating earnings (loss).............. (307) 209 1,005
Interest expense....................... (980) (953) (835)
Non-operating income................... 145 --- ---
Equity in earnings (loss) of
unconsolidated subsidiary............ 7 (35) 48
------- ------- -------
Earnings (loss) before accounting
change............................... (1,135) (779) 218
Cumulative effect of accounting change. --- --- 262
------- ------- -------
Net earnings (loss).................... $ (1,135) $ (779) $ 480
======= ======= =======
Earnings (loss) per common share:
Before accounting change............. $ (.14) $ (.10) $ .03
Accounting change.................... --- --- .03
------- ------- -------
Net earnings (loss).................. $ (.14) $ (.10) $ .06
======= ======= =======
Weighted average number of common
shares outstanding................... 8,000 8,000 8,320
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
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 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)
Capital contribution by
parent --- 683 --- 683
Net loss --- --- (1,135) (1,135)
--- ------ ------- ------
Balances at March 30, 1996 $ 80 $15,273 $(17,127) $(1,774)
=== ====== ======= ======
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
------------------------------
March 30, April 1, April 2,
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Operating activities:
Earnings (loss) before cumulative effect
of accounting change................... $(1,135) $ (779) $ 218
Adjustments to reconcile earnings (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization......... 639 605 551
Provision for doubtful accounts....... 205 145 135
Write-off of goodwill................. 852 --- ---
Equity in (earnings) loss of
unconsolidated subsidiary........... (7) 35 (48)
Changes in operating assets and
liabilities:
Receivables....................... 605 (861) (1,251)
Inventories....................... (198) 1,942 (1,789)
Accounts payable.................. (196) 2,311 1,814
Accrued liabilities............... 91 207 3
Other............................. 83 (10) (146)
------ ------ ------
Net cash provided (used) by operating
activities.............................. 939 3,595 (513)
Investing activities:
Purchases of property and equipment..... (408) (474) (335)
Financing activities:
Change in notes payable to parent....... 90 79 337
Net change in line of credit............ (1,245) (2,381) 414
Proceeds from issuance of long-term debt 32 --- ---
Payments of long-term debt.............. (158) (197) (109)
------ ------ ------
Net cash provided (used) by financing
activities.............................. (1,281) (2,499) 642
------ ------ ------
Increase (decrease) in cash............... (750) 622 (206)
Cash at beginning of year................. 1,653 1,031 1,237
------ ------ ------
Cash at end of year....................... $ 903 $ 1,653 $ 1,031
====== ====== ======
SUPPLEMENTAL INFORMATION
Interest paid........................... $ 926 $ 967 $ 876
Non-cash transactions:
Capital contribution by parent 683 --- ---
Reduction in notes payable to parent in
exchange for preferred stock of APC 1,400 --- ---
Purchase of equipment financed by seller --- --- 320
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
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 52 weeks in all years presented.
Financial Instruments: The carrying value of cash, receivables,
accounts payable and borrowings at March 30, 1996 and April 1, 1995
approximate fair value.
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. Approximately 36% of net sales for the year ended
March 30, 1996 were made to two customers. Approximately 26% of trade
accounts receivable at March 30, 1996 were due from these two customers.
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. The investment
is included in other assets.
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. Depreciation for income tax purposes is
computed on accelerated cost recovery methods. Expenditures which
substantially increase value or extend asset lives are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
Goodwill: Goodwill was amortized on a straight-line basis over a
forty year period. 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.
16
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
The Company is exploring options with respect to its investment in
APC, including a possible sale of APC. As a result of recent efforts to
sell APC, the Company has concluded there has been a decrease in the
market value of APC. During the fourth quarter of fiscal 1996, the
Company concluded that an impairment of goodwill has occurred and wrote
off the remaining goodwill of $852,000 resulting from the acquisition of
APC.
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 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 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.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Statement of Cash Flows: For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Reclassifications: Certain amounts in the balance sheet at April 1,
1995 have been reclassified to conform with the classifications used at
March 30, 1996.
17
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - NOTES PAYABLE TO PARENT AND OTHER RELATED PARTY TRANSACTIONS
The following summarizes notes payable to Parent (in thousands):
March 30, April 1,
1996 1995
-------- --------
Long-term
---------
Unsecured term note payable, interest
at the prime rate plus 2.0% (11% in
1995), due on demand............... $ --- $ 593
Unsecured term note payable, interest
at the prime rate plus 2.5% (11.5%
in 1995), due on demand............ --- 1,400
----- -----
$ --- $1,993
===== =====
In fiscal 1995, the unsecured term notes payable were classified as
noncurrent liabilities because of repayment restrictions under a loan
and security agreement (see Note 3). Interest expense on all borrowings
from Diana was $228,000, $201,000 and $154,000 for fiscal years 1996,
1995 and 1994, respectively.
On March 30, 1996, Diana entered in an agreement with APC to
purchase 1.4 million shares of APC's Series A non-voting preferred stock
in exchange for the cancellation of $1.4 million of notes payable owed
by APC to Diana. The preferred stock earns dividends at an annual rate
of $.10 per share and are cumulative from and payable quarterly
commencing April 1, 1996. Diana owns an additional 6,000,000 shares of
APC's Series A non-voting preferred stock. This 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 March 30, 1996, dividends in arrears on the preferred stock were
$2,400,000. 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
by APC's Loan and Security Agreement (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.
On March 30, 1996, Diana made a capital contribution to the Company
of $683,000 by discharging the Company from any obligation to repay
Diana for amounts advanced to the Company under a promissory note dated
March 5, 1990. In the event the Company at a future date receives cash
or other property from the sale of stock or assets of APC, the Company
will pay to Diana the lesser of (a) $683,000 plus interest thereon from
March 30, 1996 at the Prime Rate plus two percent or (b) the amount of
the cash or value of the property received.
APC purchased approximately $2,393,000 and $1,747,000 of products
from a 50%-owned subsidiary during fiscal 1996 and 1995, respectively.
18
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - NOTES PAYABLE TO PARENT AND OTHER RELATED PARTY TRANSACTIONS -
(Continued)
In June 1996, Diana extended an unsecured line of credit of $1
million to APC at prime plus 2%. There were no borrowings by APC under
this line at June 27, 1996.
NOTE 3 - REVOLVING LINE OF CREDIT
APC has a Loan and Security Agreement ("Agreement") with a lender
(amended effective June 27, 1996) providing a revolving line of credit
through November 1997 of up to $9,500,000 with interest at the prime
rate plus 2.0% (prime was 8.25% at March 30, 1996). A $2 million letter
of credit facility with fees of 2.0% is included within the total credit
facility. At March 30, 1996, APC borrowed $2,996,000 and had letters of
credit of $2,000,000 issued on its behalf by the lender.
Borrowings under the Agreement are restricted based on defined
percentages of eligible receivables and inventories. The amount
available under the Agreement at March 30, 1996 was $3,754,000. 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 restricts APC in a number of areas, including, but not limited
to, declaration of dividends, mergers and acquisitions, transactions
with affiliates, capital expenditures and additional indebtedness.
The Agreement contains financial covenants requiring a minimum
level of tangible net worth, earnings and net cash flow. At March 30,
1996 APC failed to satisfy the earnings covenant due to the write-off of
goodwill. In June 1996, APC and its lender entered into a waiver and
amendment agreement relating to the Agreement in order to avoid
violating certain financial covenants at March 30, 1996 and in fiscal
1997.
Because the Agreement provides for repayment of borrowings after a
90 day notice from the lender, the indebtedness is classified as short
term. The fiscal 1995 financial statements have been reclassified to
conform to fiscal 1996 presentation.
19
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
March 30, April 1,
Due Date 1996 1995
--------- -------- -------
7% and 8.25% mortgage notes........ August 2006 $ 837 $ 875
Notes payable with interest at
8.75% - 11.0% collateralized by various through
equipment.......................... May 1998 70 158
------ ------
907 1,033
Less current maturities............ (103) (164)
------ ------
$ 804 $ 869
====== ======
The mortgage notes payable are collateralized by land and building
with a carrying value of approximately $2,627,000 as of March 30, 1996.
Aggregate annual maturities of long-term debt for the five fiscal
years subsequent to March 30, 1996 are as follows (in thousands):
1997 ................................ $ 103
1998 ................................ 61
1999 ................................ 56
2000 ................................ 58
2001 ................................ 63
Thereafter........................... 566
-----
$ 907
=====
NOTE 5 - LEASE COMMITMENTS
APC leases tractors and trailers used in its distribution
activities under operating leases with terms ranging up to five 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 1996, 1995 and 1994 was approximately $1,801,000,
$1,650,000 and $1,750,000, respectively. Future minimum payments
(excluding contingent rentals) under noncancelable operating leases with
initial terms of one year or more for fiscal years subsequent to March
30, 1996 are as follows (in thousands):
1997 ................................ $ 716
1998 ................................ 568
1999 ................................ 411
2000 ................................ 242
2001 ................................ 159
Thereafter........................... ---
-----
$2,096
=====
20
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - 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 1996, 1995 and 1994
are as follows:
1996 1995 1994
------ ------ ------
Options outstanding at beginning of year... 350,000 400,000 ---
Options granted............................ --- --- 400,000
Options expired............................ (50,000) (50,000) ---
------- ------- -------
Options outstanding at end of year......... 300,000 350,000 400,000
======= ======= =======
Options exercisable........................ --- --- ---
Option price............................... $ .10 $ .10 $ .10
NOTE 7 - 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 $25,000, $34,000 and $39,000 for
fiscal years 1996, 1995 and 1994, respectively. APC has a 401(k) plan
which covers non-union employees. There were no contributions under
this plan for any years presented.
NOTE 8 - 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.
21
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - INCOME TAXES - (Continued)
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 (in
thousands):
March 30, April 1,
1996 1995
-------- --------
Deferred tax assets:
State net operating loss carryforwards $ 805 $ 786
Allowance for doubtful accounts 163 163
Accrued vacation 43 39
Other 45 53
------ ------
Total deferred tax assets 1,056 1,041
Valuation allowance for deferred tax assets (371) (256)
------ ------
Net deferred tax assets 685 785
Deferred tax liabilities:
Depreciation and amortization 191 262
Building and improvements 494 523
------ ------
Total deferred tax liabilities 685 785
------ ------
Net deferred taxes $ --- $ ---
====== ======
In addition to the amounts in the table above, at March 30, 1996,
the Company had federal net operating loss carryforwards totaling
$15,230,000 with its parent; these carryforwards, as well as state net
operating loss carryforwards of $16,560,000, expire at various dates
through fiscal 2010. The Company has recorded a valuation allowance of
$5,178,000 related to its federal net operating loss carryforwards with
its parent.
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
(in thousands):
Year Ended
----------------------------
March 30, April 1, April 2,
1996 1995 1994
-------- ------- -------
Income tax provision (credit) at
statutory rate........................ $(386) $(265) $ 74
Write-off of goodwill................... 290 --- ---
Tax effect of operating loss not
benefited............................. 32 210 (126)
Other, net.............................. 64 55 52
---- ---- ----
Income tax expense...................... $ --- $ --- $ ---
==== ==== ====
22
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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
Fisher (63) 1987 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
Lilly (67) Vice President of Diana since April 1995, Director
since 1988 and from 1980 to 1984, Legal and business
consultant between 1984 and 1995.
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 1996. 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 and Sydney B. Lilly receive no
compensation for services as Directors of the Company.
The executive officers of the Company are:
Name Age Since Position
- ------------------- --- ----- --------------------------
Richard Y. Fisher 63 1987 President
R. Scott Miswald 40 1990 Secretary and Treasurer
G. Michael Coggins 43 1991 President and Chief
Executive Officer of APC
23
<PAGE>
The five-year employment history of Mr. Fisher is provided under
the caption "Directors of the Registrant." R. Scott Miswald has been
Secretary and Treasurer since 1991; Secretary of Diana since 1996, Vice
President since 1992, Treasurer since 1989 and Controller since 1985.
ITEM 11. EXECUTIVE COMPENSATION
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.
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
- ------ ------ ----- ------------ ------------------- ------------
1996 $140,000 $--- $--- --- $ ---
1995 140,000 --- --- --- ---
1994 140,000 --- --- 100,000 ---
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.
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, Controller and Secretary of
Diana.
24
<PAGE>
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, 1996, 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, 1996) and (ii) beneficial ownership of the common stock (including
options exercisable within 60 days of June 1, 1996) 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)(2)... 170,000 2.1
G. Michael Coggins (2)..... 100,000 1.2
Sydney B. Lilly ........... 30,000 *
All Directors and
Officers as a
Group (4 persons)(2)..... 360,000 4.4
*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.
Mr. Fisher's ownership excludes the Company's outstanding shares
owned by Diana.
(2) Includes options exercisable within 60 days of June 1, 1996 to
purchase 100,000 shares for Messrs. Fisher and Coggins, 50,000
shares for Mr. Miswald and 250,000 shares for all directors and
officers as a group.
25
<PAGE>
The following table sets forth as of June 1, 1996, 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)...... 850,230 16.1
Sydney B. Lilly (1)........ 148,154 2.9
G. Michael Coggins......... --- ---
All Directors and
Officers as a
Group (4 persons) (1).... 1,006,487 18.6
(1) Includes options to purchase 262,264 shares by Mr. Fisher, 119,266
shares by Mr. Lilly, and 387,318 shares for all Directors and
Officers as a group all exercisable within 60 days of June 1, 1996.
(C) CHANGES IN CONTROL
In connection with APC's Loan and Security Agreement as amended,
the Company has 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
On June 1, 1994, APC executed a promissory note payable to Diana
for $1,400,000 due on demand, bearing interest at prime plus 2.5%.
Since the beginning of fiscal 1996, the largest amount owed to Diana
under this note was $1,400,000.
On March 30, 1996, Diana entered into an agreement with APC to
purchase 1.4 million shares of APC's non-voting preferred stock in
exchange for the cancellation of $1.4 million of notes payable owed by
APC to Diana. The preferred stock earns dividends at an annual rate of
$.10 per share, cumulative from April 1, 1996. Dividends are payable
quarterly commencing April 1, 1996. The preferred stock may be redeemed
at any time at APC's option, for $1.00 per share plus accrued and unpaid
dividends.
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 1996, the largest amount owed to
Diana under this note was $683,000. On March 30, 1996, Diana made a
capital contribution to the Company of $683,000 by discharging the
Company from any obligation to repay Diana for amounts advanced to the
Company under this promissory note. In the event the Company at a
future date receives cash or other property from the sale of stock or
assets of APC, the Company will pay to Diana the lesser of (a) $683,000
plus interest thereon (adjusted for any payments made from time to time
pursuant to this paragraph) from March 30, 1996 at the Prime Rate plus
two percent or (b) the amount of the cash or value of the property
received.
In June 1996, Diana extended an unsecured line of credit of $1
million to APC at prime plus 2%. There were no borrowings by APC under
this line at June 27, 1996. Interest expense on all borrowings from
Diana was $228,000 in fiscal 1996.
26
<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
(1) The following consolidated financial statements
of Entree Corporation are included in Item 8:
Report of Price Waterhouse LLP, Independent Accountants 10
Report of Ernst & Young LLP, Independent Auditors.... 11
Consolidated Balance Sheets - March 30, 1996
and April 1, 1995................................... 12
Consolidated Statements of Operations - Fiscal
Years Ended March 30, 1996, April 1, 1995 and
April 2, 1994....................................... 13
Consolidated Statements of Shareholders' Deficit -
Fiscal Years Ended March 30, 1996, April 1, 1995
and April 2, 1994................................... 14
Consolidated Statements of Cash Flows - Fiscal
Years Ended March 30, 1996, April 1, 1995
and April 2, 1994................................... 15
Notes to Consolidated Financial Statements........... 16
(2) The following consolidated financial statement
schedule of Entree Corporation is included
in Item 14(d):
Schedule II - Valuation and Qualifying Accounts...... 30
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
The Company filed (1) a Form 8-K on March 7, 1996 regarding a
change in its certifying accountant; (2) a Form 8-K/A on March 8,
1996 to amend the Form 8-K filed on March 7, 1996; and (3) a Form
8-K on March 19, 1996 related to the announcement of a potential
sale of APC.
27
<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 (incorporated
herein by reference to Exhibit 4.5 of Registrant's Form 10-K for
the year ended April 1, 1995).
4.6 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Shawmut Capital Corporation (successor to
Barclays Business Credit, Inc.) dated August 31, 1995
(incorporated herein by reference to Exhibit 4.1 of Registrant's
Form 10-Q for the period ended July 22, 1995).
4.7 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Shawmut Capital Corporation (successor to
Barclays Business Credit, Inc.) dated November 28, 1995
(incorporated herein by reference to Exhibit 4.1 of Registrant's
Form 10-Q for the period ended October 14, 1995).
4.8 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Fleet Capital Corporation (successor to Barclays
Business Credit, Inc. and Shawmut Capital Corporation) dated June
27, 1996.
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).*
28
<PAGE>
Exhibit
Number Description
10.2 Agreement dated May 14, 1995 between Atlanta Provision Company,
Inc. and The United Food & Commercial Workers Union Local 1996
(incorporated herein by reference to Exhibit 10.1 of Registrant's
Form 10-Q for the period ended July 22, 1995).
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).
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).
10.10 Agreement dated March 30, 1996 between The Diana Corporation and
Atlanta Provision Company, Inc.
10.11 Agreement dated March 30, 1996 between The Diana Corporation and
Entree Corporation.
22 Subsidiaries of the Registrant
23 Consents 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.
29
<PAGE>
ENTREE CORPORATION AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Year Ended
-----------------------------
March 30, April 1, April 2,
1996 1995 1994
-------- -------- -------
(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.......... $ 417 $ 428 $ 649
Additions -
Charged to costs and expenses......... 205 145 135
Deductions -
Bad debts written off,
net of recoveries................... (205) (156) (356)
---- ---- ----
Balance at end of period................ $ 417 $ 417 $ 428
==== ==== ====
Allowance for unrealized losses on
inventories:
Balance at beginning of period........ $ 21 $ 3 $ 201
Additions -
Charged to costs and expenses....... 65 70 ---
Deductions -
Amounts written off on sale or
disposal of inventories........... (76) (52) (198)
---- ---- ----
Balance at end of period................ $ 10 $ 21 $ 3
==== ==== ====
</TABLE>
30
<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
27th day of June, 1996.
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 (Principal Executive Officer)
/s/ R. Scott Miswald Secretary and Treasurer
R. Scott Miswald (Principal Financial and June 27, 1996
Accounting Officer)
/s/ Sydney B. Lilly Director
Sydney B. Lilly
30
WAIVER AND SEVENTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
June 27, 1996
Atlanta Provision Company, Inc.
1400 West Marietta Street, N.W.
Atlanta, Georgia 30318
Attention: Mr. 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 Fleet Capital Corporation, successor-in-
interest to Shawmut Capital Corporation, successor-in-interest to
Barclays Business Credit, Inc. ("Lender"), as amended to date (the
"Loan Agreement"). Unless otherwise defined herein, all
capitalized terms used herein shall have the same meanings provided
for such terms in the Loan Agreement.
Borrower has informed Lender that Events of Default have
occurred under the Loan Agreement because of (i) Borrower's
conversion of its $1,400,000 note payable to The Diana Corporation
into preferred stock of Borrower in violation of the prohibition on
transactions with Affiliates or stockholders outside of the
ordinary course of Borrower's business contained in subsection
9.2(d) of the Loan Agreement; and (ii) Borrower's failure to
achieve Consolidated Adjusted Net Earnings from Operations of no
greater loss than $400,000 for fiscal year 1996 as required under
subsection 9.3(b) of the Loan Agreement (collectively, 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 Existing Defaults
subject, however, to the condition that the foregoing waiver with
respect to the Existing Default under subsection 9.3(b) of the Loan
Agreement shall be effective only if the audited financial
statements for fiscal year 1996 required to be delivered by
Borrower under subsection 9.1(j)(i) of the Loan Agreement are
timely delivered and demonstrate that Borrower's Consolidated
Adjusted Net Earnings from Operations for such fiscal year are a
loss no greater than $1,045,255.
<PAGE>
Atlanta Provision Company, Inc.
June 27, 1996
Page 2
The foregoing waiver is limited to the Existing Defaults
specified and shall not constitute a waiver of any other existing
or future Default or Event of Default or of any rights that Lender
may have under the Loan Agreement or applicable law with respect
thereto, all of which rights Lender hereby expressly reserves.
2. Amendments. The Loan Agreement is hereby amended as
follows:
(a) Section 9.3(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 to exceed a $39,734 loss for fiscal
year 1997 and not less than positive earnings of $500,000 for each
fiscal year thereafter."
(b) Section 9.3(c) of the Loan Agreement (Net Cash Flow) is
amended and restated in its entirely, as follows:
"(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 July 22, 1996) of not less than the amount
set forth below opposite the last day of the applicable period:
Period Amount
June 22, 1996 $400,000
July 20, 1996 $385,000
August 17, 1996 $405,000
September 14, 1996 $420,000
October 12, 1996 $425,000
November 9, 1996 $500,000
December 7, 1996 $500,000
January 4, 1997 $480,000
February 1, 1997 $495,000
March 1, 1997 and thereafter $500,000
(c) Section 9.3(d) of the Loan Agreement (Excess
Availability) is amended to delete the reference to Seven Hundred
Fifty Thousand Dollars
<PAGE>
Atlanta Provision Company, Inc.
June 27, 1996
Page 3
($750,000) therein and to replace it with a reference to One
Million Two Hundred Fifty Thousand Dollars ($1,250,000).
3. Effectiveness. Subject to the condition specified in
Paragraph 1 hereof, this Waiver and Seventh Amendment to Loan and
Security Agreement shall be effective as of the date hereof when
duly executed by both parties and delivered to Lender. Except as
expressly amended hereby, the Loan Agreement shall remain in full
force and effect as executed.
4. Counterparts. This Waiver and Seventh Amendment to Loan
and Security Agreement may be executed in counterparts all of
which, taken together, shall constitute but one instrument.
Very truly yours,
FLEET CAPITAL CORPORATION
By: /s/ Alan R. Meier
Senior Vice President
Acknowledged and agreed to
this 27th day of June, 1996
ATLANTA PROVISION COMPANY, INC.
By: /s/ R. Scott Miswald
Secretary
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made among The Diana Corporation, a
Delaware corporation ("Diana"), and Atlanta Provision Company,
Inc., a Georgia corporation ("APC").
WHEREAS, Diana has agreed to purchase, and APC has agreed
to sell, preferred stock of APC in exchange for the cancellation of
$1.4 million of indebtedness owed by APC;
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale of Preferred Stock. Effective as
of March 30, 1996, Diana agrees to purchase, and APC agrees to
sell, 1,400,000 shares of APC's Series A preferred stock. The
purchase price for the Preferred Stock shall be $1.4 million,
payable by reducing by $1.4 million as of March 30, 1996, the
amount of indebtedness owed by APC to Diana. APC shall file an
appropriate amendment to its articles of incorporation to increase
the number of authorized shares of Series A preferred stock to
authorize the issuance of stock pursuant hereto.
2. Governing Law. This Agreement shall be governed by
and constructed under the laws of the state of Wisconsin. Matters
relating to the corporate affairs of APC shall be governed by the
laws of the state of Georgia.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement to be effective as of the 30th day of March, 1996.
THE DIANA CORPORATION ATLANTA PROVISION COMPANY, INC.
By: /s/ Sydney B. Lilly By: /s/ R. Scott Miswald
Senior Vice President Secretary
AGREEMENT
THIS AGREEMENT, effective March 30, 1996, is by and
between The Diana Corporation, a Delaware Corporation ("Diana"),
and Entree Corporation, a Delaware Corporation ("Entree"):
WHEREAS, Diana is the owner of approximately 81% of the
outstanding common stock of Entree, and has previously advanced
funds to Entree; and
WHEREAS, in order to provide Entree with funds to pay its
currently unpaid expenses and anticipated expenses over the next
year, Diana has agreed to make the contribution to the capital of
Entree described below;
NOW, THEREFORE, it is agreed as follows:
1. As a contribution to the capital of Entree and
except as provided below, Diana hereby releases and
discharges Entree from any obligation to repay
Diana for any amounts previously advanced by Diana
to Entree (including all amounts due Diana under
that certain Promissory Note of Entree dated March
5, 1990, payable to Diana), as well as any amounts
owed by Entree to Diana not arising from advances,
together with accrued interest on such amounts (the
aggregate of such amounts and accrued interest is
referred to below as the "Obligation").
2. Notwithstanding the foregoing, in the event Entree
at a future date receives cash or other property
directly or indirectly from, or in any manner
arising out of, the sale of stock or assets of
Atlanta Provision Company, Inc., Entree will pay to
Diana the lesser of (a) the amount of the
Obligation plus an additional amount computed as
interest on the Obligation (adjusted for any
payments made from time to time pursuant to this
paragraph) from the date of this Agreement at the
"Prime Rate" as published from time to time in the
Wall Street Journal, plus two percent (2%),
compounded annually, or (b) the amount of the cash
or value of the property received.
3. Diana hereby agreed to pay to Entree, on demand,
the sum of $23,000 as a contribution to the capital
of Entree.
<PAGE>
4. No additional stock shall be issued by Entree in
exchange for such capital contributions.
THE DIANA CORPORATION
By: /s/ Richard Y. Fisher
Chairman
ENTREE CORPORATION
By: /s/ R. Scott Miswald
Secretary
EXHIBIT 22
ENTREE CORPORATION AND SUBSIDIARY
SUBSIDIARY OF THE REGISTRANT
State of
Subsidiaries of the Registrant Incorporation
- ------------------------------ -------------
Atlanta Provision Company, Inc................................... Georgia
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-72302) of Entree
Corporation of our report dated June 27, 1996 appearing in this
Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
June 27, 1996
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statement (Form S-8) pertaining to the 1993
Nonqualified Stock Option Plan of Entree Corporation of our report
dated June 2, 1995, with respect to the consolidated financial
statements and schedule of Entree Corporation included in the
Annual Report (Form 10-K) for the fiscal year ended March 30, 1996.
Milwaukee, Wisconsin ERNST & YOUNG LLP
June 27, 1996
<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 MARCH 30, 1996 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> MAR-30-1996
<PERIOD-START> APR-03-1995
<PERIOD-END> MAR-30-1996
<CASH> 903
<SECURITIES> 0
<RECEIVABLES> 9265
<ALLOWANCES> (417)
<INVENTORY> 4541
<CURRENT-ASSETS> 14523
<PP&E> 7566
<DEPRECIATION> (4396)
<TOTAL-ASSETS> 18048
<CURRENT-LIABILITIES> 11618
<BONDS> 804
<COMMON> 80
0
0
<OTHER-SE> (1854)
<TOTAL-LIABILITY-AND-EQUITY> 18048
<SALES> 236108
<TOTAL-REVENUES> 236146
<CGS> 231575
<TOTAL-COSTS> 231575
<OTHER-EXPENSES> 4878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 980
<INCOME-PRETAX> (1135)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1135)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1135)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
