UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended January 4, 1997
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.)
26025 Mureau Road, Calabasas, California 91302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 878-7711
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.
X Yes ___ No
At February 15, 1997, the registrant had issued and outstanding an
aggregate of 8,000,000 shares of its common stock.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
Entree Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
January 4, March 30,
1997 1996
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1,359 $ 903
Net current assets of discontinued operations --- 2,002
------ ------
Total current assets 1,359 2,905
Net noncurrent assets of discontinued operations 2,785 2,721
------ ------
$ 4,144 $ 5,626
====== ======
Liabilities and Shareholders' Deficit
Current liabilities
Net current liabilities of discontinued
operations $ 1,106 $ ---
------ ------
Total current liabilities 1,106 ---
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 (19,738) (17,127)
------ ------
Total shareholders' deficit (4,362) (1,774)
------ ------
$ 4,144 $ 5,626
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
12 Weeks Ended 40 Weeks Ended
January 4, January 6, January 4, January 6,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Earnings (loss) from
continuing operations $ --- $ --- $ --- $ ---
Discontinued operations:
Loss from discontinued
operations (76) (14) (584) (319)
Estimated loss on
disposal of discontinued
operations (1,800) --- (1,800) ---
------ ------ ------- -------
Loss before extraordinary
item (1,876) (14) (2,384) (319)
Extraordinary item --- --- (227) ---
------ ------ ------- -------
Net loss $ (1,876) $ (14) $ (2,611) $ (319)
====== ====== ======= =======
Loss per common share:
Continuing operations $ --- $ --- $ --- $ ---
Discontinued operations:
Loss from discontinued
operations (.01) --- (.08) (.04)
Estimated loss on
disposal (.22) --- (.22) ---
Extraordinary item --- --- (.03) ---
------ ------ ------- -------
Net loss $ (.23) $ --- $ (.33) $ (.04)
====== ====== ======= =======
Weighted average
number of common
shares outstanding 8,000 8,000 8,000 8,000
====== ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
Entree Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
40 Weeks Ended
January 4, January 6,
1997 1996
<S> <C> <C>
Operating Activities:
Loss before extraordinary item $(2,384) $ (319)
Reconciliation of net loss to net cash
provided by operating activities:
Net change in discontinued operations 1,189 1,451
------ ------
Net cash provided (used) by operating activities (1,195) 1,132
Investing activities:
Net change in discontinued operations (401) (297)
Financing activities:
Net change in discontinued operations 2,279 (1,268)
Extraordinary item (227) ---
------ ------
Net cash provided (used) by financing activities 2,052 (1,268)
Increase (decrease) in cash 456 (433)
Cash at beginning of period 903 1,653
------ ------
Cash at end of period $ 1,359 $ 1,220
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Entree Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the forty weeks ended January 4, 1997 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.
On February 3, 1997, the Company sold a majority of the assets of
Atlanta Provision Company, Inc. ("APC") to Colorado Boxed Beef Company
("Colorado") (see Note 2). Consequently, the Company's historical results of
operations have been restated to reflect the operations of APC as
discontinued operations. APC was the Company's sole operating subsidiary.
As a result of the sale of APC, the Company has no remaining continuing
operations.
The computation of loss per common share is based on the weighted
average number of common shares.
NOTE 2 - Discontinued Operations
On February 3, 1997, the Board of Directors of the Company approved the
sale of a majority of the assets of APC to Colorado. The sale closed on
February 3, 1997.
Colorado purchased the following assets of APC for $13.5 million:
receivables, inventories, machinery and equipment, furniture and fixtures,
and certain other current assets. Colorado made a cash payment to APC of
$6.9 million of which $712,000 is restricted pursuant to the terms of the
Asset Purchase Agreement. Colorado also assumed accounts payable and accrued
liabilities of APC of $6.6 million. APC repaid $5.8 million to its lender to
extinguish all obligations under its revolving line of credit.
APC retained real estate with a net book value of $2.6 million at
February 1, 1997. The real estate is collateral for two mortgage notes that
amount to $794,000. APC has entered into a one year lease with Colorado.
Each party can terminate the lease with 180 days written notice. The real
estate will soon be listed for sale.
4
<PAGE>
The loss from discontinued operations for the twelve and forty weeks
ended January 4, 1997 includes both APC's operating loss and Entree's
corporate office loss for these periods of time. Entree's corporate office
has had insignificant operating activity for the periods presented. The loss
on disposal of discontinued operations for the twelve weeks ended January 4,
1997 represents the Company's loss on the sale of APC. This amount reflects
a provision for certain liabilities related to the sale and is net of an
anticipated gain on the sale of APC's real estate of $367,000.
The components of net assets and net liabilities of discontinued
operations included in the balance sheets at January 4, 1997 and March 30,
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
January 4, 1997 March 30, 1996
<S> <C> <C>
Receivables $ 9,890 $ 8,848
Inventories 4,484 4,541
Other current assets 266 231
Accounts payable (7,619) (7,893)
Revolving lines of credit (5,430) (2,996)
Other current liabilities (997) (729)
Reserve for loss on disposal (1,700) ---
------- -------
Net current assets (liabilities)
of discontinued operations $ (1,106) $ 2,002
======= =======
Property and equipment, net $ 3,127 $ 3,170
Other assets 408 355
Long term debt (750) (804)
------- -------
Net noncurrent assets of
discontinued operations $ 2,785 $ 2,721
======= =======
</TABLE>
The net assets of Entree's corporate office are insignificant and have
been included in the net assets and liabilities of discontinued operations.
Operating results relating to the discontinued operations for these
periods are as follows (in thousands):
40 Weeks Ended
January 4, 1997 January 6, 1996
Net sales $188,853 $182,709
======= =======
Loss from operations $ (584) $ (319)
======= =======
No income taxes have been allocated to discontinued operations for the
forty weeks ended January 4, 1997 or January 6, 1996 because there was no
consolidated income tax expense or income tax expense for continuing
operations in these periods.
5
<PAGE>
APC had an operating loss of $250,000 subsequent to January 4, 1997
through the date of sale which will be reflected as a loss from discontinued
operations in the fourth quarter. In addition, APC incurred expenses of
$281,000 subsequent to January 4, 1997 resulting from the early termination
of the revolving line of credit established on October 4, 1996 (see Note 4).
The Company will reflect an extraordinary charge of $281,000 in the fourth
quarter for these expenses.
NOTE 3 - Preferred Stock of Subsidiary owned by Parent
The Diana Corporation ("Diana") owns 7,400,000 shares of APC's 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 January 4, 1997, dividends in arrears on the preferred stock were
$2,955,000. The preferred stock may be redeemed at any time at APC's option
for $1.00 per share plus accrued and unpaid dividends. Diana's investment in
APC's preferred stock is reflected within the accompanying balance sheet as
preferred stock of subsidiary owned by parent.
NOTE 4 - Extraordinary Item
On October 4, 1996, APC refinanced its revolving line of credit with a
new lender. In connection with the refinancing, APC incurred expenses of
$227,000 which are reflected in the fiscal 1997 Condensed Consolidated
Statements of Operations as an extraordinary item pursuant to Statement of
Financial Accounting Standards No. 4.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
On February 3, 1997, the Company sold a majority of the assets of APC to
Colorado (see Note 2 to the Condensed Consolidated Financial Statements).
Consequently, the Company's historical results of operations have been
restated to reflect the operations of APC as discontinued operations. APC
was the Company's sole operating subsidiary. As a result of the sale of APC,
the Company has no remaining continuing operations.
For the twelve weeks ended January 4, 1997, the loss from discontinued
operations increased to $75,000 from a loss of $14,000 for the same period of
time in fiscal 1996. For the forty weeks ended January 4, 1997, the loss
from discontinued operations increased to $584,000 from a loss of $319,000
for the same period of time in fiscal 1996. The increase in the year-to-date
loss is primarily attributable to a decrease in APC's gross profit margins.
The loss on disposal of discontinued operations for the twelve weeks
ended January 4, 1997 represents the Company's loss on the sale of APC. This
amount reflects a provision for certain liabilities related to the sale and
is net of an anticipated gain on the sale of APC's real estate of $367,000.
The extraordinary item is discussed in Note 4 to the Condensed
Consolidated Financial Statements.
Liquidity and Capital Resources
After the completion of the sale of a majority of APC's assets, the
Company's assets consisted of the following (in thousands):
Cash $ 431
Restricted cash 712
Building 2,586
Other assets 163
------
$ 3,892
======
The restricted cash is held in an escrow account primarily to secure the
collection of APC receivables purchased by Colorado and for reimbursement of
indemnification obligations. Receivables purchased by Colorado that are not
collected by May 4, 1997 may be returned to APC in exchange for cash held in
escrow. All funds remaining in escrow on May 4, 1997 will be returned to
APC, except for $100,000, which will remain in escrow until February 3, 1998.
APC has entered into a one year lease with Colorado for the building,
however, both parties can terminate the lease for any reason within 180 days
of notice of termination. APC will soon list the building for sale. The
real estate is collateral for two mortgages that amount to $794,000.
7
<PAGE>
The Company will cease business and may be liquidated after APC's real
estate is sold and the remaining receivables are collected or written off.
The Diana Corporation ("Diana"), the Company's parent, will cause the Company
to periodically upstream any available unrestricted cash to Diana (after
settlement of the Company's liabilities). Payments made by APC to Diana will
first be applied to dividends in arrears on the preferred stock of $2,955,000
and thereafter to redeem APC's preferred stock owned by Diana. It is
unlikely that APC will be able to fully redeem the preferred stock owned by
Diana. Consequently, it is probable that the Company's shareholders will not
receive a dividend upon a liquidation of the Company.
Forward Looking Statement
The Company's statement regarding the likelihood that the Company's
shareholders will not receive a dividend upon a liquidation of the Company
may be considered a "forward looking statement" within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results or
developments may differ materially from those contained in this forward
looking statement.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company for the
quarter covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTREE CORPORATION
/s/ R. Scott Miswald
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
DATE: February 28, 1997
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ENTREE COPORATION AS OF AND FOR THE 40
WEEKS ENDED JANUARY 4, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> JAN-04-1997
<CASH> 1359
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1359
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4144
<CURRENT-LIABILITIES> 1106
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> (4442)
<TOTAL-LIABILITY-AND-EQUITY> 4144
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (2384)
<EXTRAORDINARY> (227)
<CHANGES> 0
<NET-INCOME> (2611)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
