SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
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 1-6856
ANDAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-2571394
(State or other jurisdiction of incorporation
or organization) (I. R. S. Employer ID no.)
909 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212)376-5545
Not Applicable
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check X 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
The number of shares outstanding of the registrant's common stock
as of January 31, 1995 was 329,859.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
ASSETS
December 31, September 30,
1994 1994
(Unaudited)
Current assets:
Cash 1,549 1,143
Accounts receivable 3,833 4,028
Inventories 1,264 1,254
Prepaid expenses 537 317
Other current assets 222 216
-------- --------
Total current assets 7,405 6,958
Investments in affiliates 1,346 1,235
Property and equipment 9,537 9,732
Loans due from Multi-Arc Inc.
management 1,000 0
Other assets 2,463 2,532
-------- --------
21,751 20,457
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term borrowings,
including current portion
of long-term debt 1,486 1,425
Current portion of debt due
shareholders 1,000 750
Accounts payable 1,316 1,764
Other accrued expenses 5,682 5,834
-------- --------
Total current liabilities 9,484 9,773
Long-term debt 7,971 6,952
Debt due shareholders 7,114 7,364
Other deferred income 2,033 1,527
Convertible subordinated debentures 2,325 1,825
Shareholders' equity:
Common shares, par value $20
per share, 1,500,000 authorized
and 370,496 issued 7,410 7,410
Paid-in-capital 31,625 31,625
Deficit (40,550) (40,358)
Less 40,637 common shares held
in treasury, at cost (5,661) (5,661)
-------- --------
Total shareholders' equity
(deficit) (7,176) (6,984)
-------- --------
21,751 20,457
====== ======
See accompanying notes to consolidated financial
statements.
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands of dollars,
except per share amounts)
Three Months
Ended
December 31,
1994 1993
Operating revenues:
Trade sales 6,437 5,840
Royalties and commissions 70 57
----- -----
6,507 5,897
Operating costs and expenses:
Cost of revenues 3,231 2,972
Depreciation expense 509 561
Selling, general, and
administrative expenses 2,490 2,217
----- -----
6,230 5,750
Income from operations 277 147
Other income (expense):
Gain from initial public offering of
Multi-Arc India Ltd. 85 0
Investment and other income, net (5) 11
Interest expense (438) (389)
----- -----
(358) (378)
Income (loss) from continuing operations
before income taxes (81) (231)
(Provision) for income taxes 0 0
---- -----
Income (loss) from continuing operations (81) (231)
Loss from discontinued operations (111) (322)
----- -----
Net income (loss) (192) (553)
===== =====
Income (loss) per common share:
Income (loss) from continuing operations (0.24) (0.70)
Loss from discontinued operations (0.34) (0.98)
------ ------
Net income (loss) (0.58) (1.68)
See accompanying notes to consolidated financial statements.
<PAGE>
ANDAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands of dollars)
Three Months Ended
December 31,
1994 1993
Cash (used) provided by operating activities:
Income (loss) from continuing operations
before income taxes (81) (231)
Adjustments to reconcile income (loss) from
continuing operations to net cash (used)
provided by operating activities:
Depreciation 509 561
Amortization of patents, trademarks,
and license rights 44 43
Amortization of deferred income (20) (25)
Gain from initial public offering of
Multi-Arc India Ltd. (85) 0
Other, net 3 18
Cash (used) by discontinued operations (93) (147)
Income taxes paid 0 (5)
Change in operating assets and liabilities:
Decrease in accounts receivable 207 1,261
(Increase) in inventories (10) (470)
(Increase) in other current assets (226) (152)
(Decrease) in accounts payable
and accrued liabilities (587) (122)
Net cash (used) provided by
operating activities (339) 731
Cash flows from financing activities:
Proceeds from long-term debt 1,400 23
Loans to Multi-Arc management (1,000) 0
Proceeds from sale of common stock
and debentures of Multi-Arc 1,000 0
Reductions of long-term debt (310) (424)
(Decrease) in debt due within one year (10) (70)
Net cash provided (used) by
financing activities 1,080 (471)
Cash flows from investing activities:
Gross additions to property
and equipment (335) (317)
Reductions of (investment in) affiliates (26) 13
Other, net 26 37
Net cash (used) by investing
activities (335) (267)
Increase (decrease) in cash 406 (7)
Cash at beginning of period 1,143 477
Cash at end of period 1,549 470
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and
include all adjustments which, in the opinion of management, are
necessary to present fairly the results for such periods. These interim
financial statements do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction
with the consolidated financial statements and notes thereto
included in Andal Corp.'s ("Andal" or the "Company") annual
report on Form 10-K for the year ended September 30, 1994.
The accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates the
realization of assets and the liquidation of liabilities in the
ordinary course of business. The Company's only source of
operating cash flow, other than from the sale of capital assets,
is its subsidiary, Multi-Arc Inc. ("Multi-Arc"). Pursuant to the
terms of Multi-Arc's term loan and revolving credit facility with
First Fidelity Bank, N. A., Multi-Arc is not permitted to pay
dividends or make loans to Andal, except that Multi-Arc is
permitted to pay cash to Andal to the extent that it utilizes any
of Andal's federal, state, and local net operating loss
carryforwards for income tax purposes. However, such payments
cannot exceed $1 million per year for fiscal 1995 and 1996, after
which no further payments are permitted. Andal's fiscal 1995
operating cash needs, including cash required for debt service,
are anticipated to aggregate approximately $3.3 million. To
partially make up the shortfall, in December 1994 Andal sold, for $500,000,
approximately 2 1/2% of the common stock of Multi-Arc to Multi-
Arc's management; and Multi-Arc issued $500,000 of convertible
subordinated debentures (convertible into approximately 2% of
Multi-Arc common stock) to such management, the proceeds of which
were remitted to Andal as a return of capital. Both the sale of
the common stock and the issuance of the debentures were funded
through non-recourse loans of $1 million made to its management
by Multi-Arc using Multi-Arc's revolving credit facility with First
Fidelity Bank. Andal has also, in principle, agreed to an
additional $3.5 million of stock sales and $3.5 million of Multi-
Arc debenture issuances to Multi-Arc management and licensees, to
be funded by independent sources, under the same terms and
conditions, so long as such sales and issuances occur on or
before April 15, 1995. There is no guarantee that the aforementioned
transactions will, in fact, occur. Andal could also raise cash
by making sales of the remaining stock it owns of Steve's Homemade
Ice Cream, Inc., as market conditions permit.
In addition to its regular operating cash needs, Andal may
also require cash to fund litigation costs related to its
discontinued operations and/or to make payments to creditors who
have yet to make payment demands. For the longer term, even if
the aforementioned Multi-Arc stock and debenture transactions are
consummated, the Company's cash sources may not be sufficient, in
which case a further restructuring of its indebtedness to its
shareholders will be required. Should the Company be unable to
accomplish such a restructuring, there may be no alternative
other than to enter into bankruptcy proceedings. The accompanying
consolidated financial statements do not include any adjustments
relating to the possible effect on the recoverability and
classification of assets or the amounts and classification of
liabilities that may be necessary should the Company be unable to
continue as a going concern.
(2) In December 1994, Andal sold, for $500,000, approximately 2
1/2% of the common stock of Multi-Arc to Multi-Arc's management;
and Multi-Arc issued $500,000 of convertible subordinated
debentures (convertible into approximately 2% of Multi-Arc common
stock) to such management, the proceeds of which were remitted to
Andal as a return of capital. Both the sale of the common stock
and the issuance of the debentures were funded through
non-recourse loans of $1 million made to its management by Multi-arc using
Multi-Arc's revolving credit facility with First Fidelity Bank.
Because of the non-recourse nature of the loans to management,
the gain on the sale of Multi-Arc common stock of approximately
$360,000 has been deferred until such time as the management
loans are repaid.
(3) In November 1994, Multi-Arc India Ltd. ("India") completed
an initial public offering on the Bombay Stock Exchange which
reduced the Company's interest in India from 40% to 21%. Andal recorded
a pretax gain of $85,000 as a result of this sale.
(4) Inventories are summarized as follows:
December 31, September 30,
1994 1994
(In thousands of dollars)
Raw materials and supplies 1,077 1,198
Work-in-process 187 56
------- -------
1,264 1,254
(5) Convertible subordinated debt at December 31, 1994 consists
of $1,825,000 of Andal's 5 1/2% convertible subordinated debentures
due in 1997 and $500,000 of Multi-Arc's 6% convertible
subordinated debentures due in 2004.
(6) Andal and its subsidiaries file a consolidated federal
income tax return, and state and local tax returns are generally filed
on a combined basis.
At September 30, 1994, the Company had net operating loss
carryforwards ("NOL's") for federal income tax purposes of
approximately $33 million which expire in varying amounts in
years 1995 through 2008. In addition, the Company's subsidiary in the
United Kingdom had unrelieved corporation tax losses of
approximately $3.6 million.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. The Company has provided a valuation allowance
against net deferred tax assets because it is more likely than
not that the net deferred tax assets will not be realized.
(7) In August 1982, National States Electric Corp., a subsidiary
of the Company then engaged in the electrical contracting
business ("NSEC"), commenced an action in the New York Supreme Court,
County of New York, against LFO Construction Company ("LFO") for breach
of contract. The action arose out of a subcontract agreement
between NSEC and LFO in connection with a New York City construction
project for which LFO served as construction manager. LFO, in
response, asserted various counterclaims and set-offs against
NSEC; and, in October 1982, LFO and two other parties commenced an
action in the same court against NSEC, the Company, and Andrew J.
Frankel, Chairman of the Board of the Company, in which the plaintiffs
essentially realleged the counterclaims and set-offs. These
actions were tried in October 1992. The court dismissed the
claims against the Company and Mr. Frankel on the merits and with
prejudice; but the jury returned a verdict against NSEC for
approximately $3.8 million, including interest and costs; and a
judgement was entered on the verdict in November 1992. LFO and
its associates appealed from that part of the judgement which
dismissed the action against the Company and Mr. Frankel. NSEC, in turn,
appealed from the judgement against it. In April 1994, the
Appellate Division affirmed the dismissal of the claims against
the Company and Mr. Frankel. In addition, the Court struck the award
for the damages against NSEC and remanded the matter to the trial
court for a new trial as to damages. NSEC is an inactive and
insolvent subsidiary of the Company. In January 1995, NSEC
settled the issue of damages with LFO by assigning to LFO its only asset
which consisted of a claim it had against the New York City
Transit Authority for work it performed for the Authority many years ago.
The claim had been carried on the books of NSEC at no value; and,
accordingly, the settlement did not result in any loss to the
Company.
The Company is aware of various other lawsuits, claims, and
administrative proceedings which are pending involving it and its
subsidiaries. In the opinion of the Company's management, these
matters will not result in any material adverse effect on the
Company's consolidated financial position, results of operations,
or liquidity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company, through its subsidiary, Multi-Arc Inc. ("Multi-
Arc"), is engaged in surface enhancement, the business of coating
materials, primarily metals. Multi-Arc is also engaged in the
design, manufacture, assembly, and sale of proprietary coating
equipment systems.
Consolidated operating revenues of $6.5 million for the
three months ended December 31, 1994 were $610,000 higher than the
revenues for the comparable period of the prior year. Operating
revenues have improved over the prior year entirely as the result
of 11% growth in coating services revenue due to improved
economic conditions in the United States, Canada, and, especially the
United Kingdom.
Income (loss) from continuing operations before income taxes
was $(81,000) for the three months ended December 31, 1994,
compared with $(231,000) in the comparable period of the prior
year. Income (loss) from continuing operations for the three
months ended December 31, 1994 improved over the prior year as a
result of increased gross profits, principally related to the
higher revenues, in part offset by higher selling, general, and
administrative costs which primarily reflect higher personnel
costs. Multi-Arc (UK) Ltd. accounted for approximately half of
the improvement from prior year.
In November 1994, Multi-Arc India Ltd. ("India") completed
an initial public offering on the Bombay Stock Exchange which
reduced the Company's interest in India from 40% to 21%. Andal recorded
a pretax gain of $85,000 as a result of this sale.
Interest expense has increased entirely as a result of
higher interest rates as debt levels have been decreased.
The income (loss) from discontinued operations in the 1994
period represents legal expenses incurred relating to
discontinued construction and real estate operations. The 1993 period, in
addition to legal expenses, includes $200,000 for settlement of a
litigation.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1994, cash
increased by $406,000. This increase was accounted for by cash
provided by financing activities of $1.1 million, offset by cash
used by operating activities of $339,000 and by funds used for
investing activities of $335,000 for capital expenditures. Cash
used by operating activities includes cash used by discontinued
operations of $93,000 for legal expenses of the Company's
discontinued construction and real estate operations. The
Company's operating cash flow continues to reflect a high level
of non-cash charges for depreciation and amortization. Operating
activities also includes $587,000 of cash used to decrease
accounts payable and accrued liabilities which was primarily related to
seasonal payments of additional payroll and year-end bonus and
profit sharing at Multi-Arc as well as a reduction of trade
payables.
Financing activities include $1.4 million of new debt
borrowed by Multi-Arc under its revolving credit facility with First
Fidelity Bank, N. A. of which $1 million was used to finance the
loans to management (see Note 2) and the balance for working
capital purposes. During the three months ended December 31,
1994, $320,000 of borrowed funds were repaid.
The Company's only source of operating cash flow, other than
from the sale of capital assets, is Multi-Arc. Pursuant to the
terms of the restructuring of Multi-Arc and of Multi-Arc's term
loan and revolving credit facility with First Fidelity Bank,
Multi-Arc is not permitted to pay dividends or make loans to Andal,
except that Multi-Arc is permitted to pay cash to Andal to the
extent that it utilizes any of Andal's federal, state, and local
net operating loss carryforwards for income tax purposes.
However, such payments cannot exceed $1 million per year for fiscal 1995
and 1996, after which no further payments are permitted. Andal's
fiscal 1995 operating cash needs, including cash required for
debt service, are anticipated to aggregate approximately $3.3 million.
To partially make up the shortfall, in December 1994, Andal sold,
for $500,000, approximately 2 1/2% of the common stock of
Multi-Arc to Multi-Arc's management; and Multi-Arc issued $500,000 of
convertible subordinated debentures (convertible into approximately
2% of Multi-Arc common stock) to such management, the proceeds of
which were remitted to Andal as a return of capital. Both the
sale of the common stock and the issuance of the debentures were
funded through non-recourse loans of $1 million made to its management
by Multi-Arc using Multi-Arc's revolving credit facility with First
Fidelity Bank. Andal has also, in principle, agreed to an
additional $3.5 million of stock sales and $3.5 million of Multi-
Arc debenture issuances to Multi-Arc management and licensees, to
be funded by independent sources, under the same terms and
conditions, so long as such sales and issuances occur on or
before April 15, 1995. There is no guarantee that the aforementioned
transactions will, in fact, occur. Andal could also raise cash
by making sales of the remaining Steve's stock it owns, as market
conditions permit.
In addition to its regular operating cash needs, Andal may
also require cash to fund litigation costs related to its
discontinued operations and/or to make payments to creditors who
have yet to make payment demands. For the longer term, even if
the aforementioned Multi-Arc stock and debenture transactions are
consummated, the Company's cash sources may not be sufficient, in
which case a further restructuring of indebtedness to the UBC
Lenders and Fleet Assignees will be required. Should the Company
be unable to accomplish such a restructuring, there may be no
alternative other than to enter into bankruptcy proceedings.
PART II. OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORT ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1994.
<PAGE> S I G N A T U R E
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.
ANDAL CORP.
DATE: February 2, 1995 By: /s/ Michael S. Huber
Michael S. Huber
Senior Vice President,
Chief Financial Officer,
and Treasurer
DATE: February 2, 1995 By: /s/ Walter N. Kreil, Jr.
Walter N. Kreil, Jr.
Vice President,
Chief Accounting Officer,
and Controller
