<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 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 1-6675
THE ARLEN CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2668657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Eighth Avenue, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 736-8100
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(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
----------- -------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $1 par value - 29,586,666 shares outstanding as of August 15, 1997
1
<PAGE> 2
THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets -- May 31, 1997 and 1996
(unaudited) 4
Consolidated balance sheet -- February 28, 1997 5
Consolidated statements of operations -- Three
months ended May 31, 1997 and 1996 (unaudited) 6
Consolidated statements of cash flows -- Three
months ended May 31, 1997 and 1996 (unaudited) 7-8
Notes to consolidated financial statements 9-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-12
PART II. OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
3
<PAGE> 4
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($000s Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
May 31,
-------
ASSETS 1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9 $ 53
Note receivable - current portion,
net of unamortized discount of $15 and $95
in 1997 and 1996 907 911
--------- ---------
TOTAL CURRENT ASSETS 916 964
PROPERTY AND EQUIPMENT, net 51 66
OTHER ASSETS, including amounts due from
former subsidiaries 177 469
NOTE RECEIVABLE, less current portion,
net of unamortized discount of $16 in 1996 -- 484
--------- ---------
TOTAL ASSETS $ 1,144 $ 1,983
========= =========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable $ 137 $ 137
Accrued interest payable (including $4 and $3 due to
related parties in 1997 and 1996) 223 186
Accrued expenses, fees and other (Note 2) 7,208 7,078
Current portion of long-term obligations due
to related parties 829 299
--------- ---------
TOTAL CURRENT LIABILITIES 8,397 7,700
LONG-TERM OBLIGATIONS DUE TO RELATED PARTIES -- 554
AMOUNTS DUE TO RELATED PARTIES 135,475 126,898
--------- ---------
TOTAL LIABILITIES 143,872 135,152
COMMITMENTS AND CONTINGENCIES (Note 2)
CAPITAL DEFICIT (142,728) (133,169)
--------- ---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $ 1,144 $ 1,983
========= =========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, 1997
($000s Omitted)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4
Note receivable - current portion,
net of unamortized discount of $35 887
---------
TOTAL CURRENT ASSETS 891
PROPERTY AND EQUIPMENT, net 51
OTHER ASSETS, including amounts due from
former subsidiaries 181
---------
TOTAL ASSETS $ 1,123
=========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable $ 137
Accrued interest payable (including $4 due to related parties) 213
Accrued expenses, fees and other (Note 2) 7,013
Current portion of long-term obligations due to related parties 829
---------
TOTAL CURRENT LIABILITIES 8,192
AMOUNTS DUE TO RELATED PARTIES 133,143
---------
TOTAL LIABILITIES 141,335
COMMITMENTS AND CONTINGENCIES (Note 2)
CAPITAL DEFICIT (140,212)
---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $ 1,123
=========
</TABLE>
5
<PAGE> 6
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
May 31,
-------
1997 1996
---- ----
<S> <C> <C>
GENERAL & ADMINISTRATIVE
EXPENSES (279) (280)
OTHER (EXPENSES) INCOME:
Interest expense (including amounts due
to related parties of $2,682 in
1997 and $2,509 in 1996) (2,696) (2,586)
Interest income 370 --
Other income, net 89 144
------- -------
Net loss ($2,516) ($2,722)
======= =======
LOSS PER COMMON SHARE ($ 0.08) ($ 0.08)
======= =======
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
May 31,
-------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,516) ($2,722)
------- -------
Adjustments to reconcile net loss to cash (used) provided by operating
activities:
Depreciation and amortization 6 6
Amortization on note discount (20) (36)
Increase in accrued interest due related parties
in exchange for interest 2,682 2,509
Changes in assets and liabilities
(Increase) decrease in assets:
Other assets 4 --
Increase (decrease) in liabilities:
Accrued interest payable 10 7
Accrued other liabilities 195 59
------- -------
Total adjustments 2,877 2,545
------- -------
Net cash (used) provided by operating activities 361 (177)
------- -------
</TABLE>
See notes to consolidated financial statements
7
<PAGE> 8
THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Three months ended
May 31,
-------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (6) --
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on notes receivable -- 241
Principal payments on long-term borrowings -- (21)
Payments on debt to related parties (350) --
----- -----
Net cash provided by financing activities (350) 220
----- -----
NET INCREASE IN CASH AND
CASH EQUIVALENTS 5 43
CASH AND CASH EQUIVALENTS, at
February 28, 1997 and 1996 4 10
----- -----
CASH AND CASH EQUIVALENTS, at
May 31, 1997 and 1996 $ 9 $ 53
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the three months ended
May 31, 1997 and 1996 for interest $ 350 $ 4
===== =====
</TABLE>
See notes to consolidated financial statements
8
<PAGE> 9
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(May 31, 1997)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Arlen Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, the financial statements 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 three months ended May 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending February 28, 1998. For further information, reference is made to the
Company's Consolidated Financial Statements and Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1997.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The accompanying unaudited consolidated financial statements of the
Company have been prepared on the basis that the Company will continue as a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. At May 31, 1997, the Company
had a working capital deficiency of $7,481,000 and a capital deficit of
$142,728,000. Currently, the Company meets its operating expenses with the fees
generated by a subsidiary for participation in mortgage financing activities and
the proceeds of a $2,000,000 promissory note received in connection with the
February 1996 disposition of its operating subsidiaries. The Company is seeking
new business opportunities, though there can be no assurance that it will be
successful in achieving this objective.
9
<PAGE> 10
\ THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(May 31, 1997)
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company is the sponsor of a defined benefit pension plan (the
"Plan") which was frozen in 1981. The actuarial valuation of the Plan as of
March 1, 1991 (the latest Plan valuation) indicated the unfunded actuarial
accrued liability was approximately $850,000.
In November 1996, the United States Internal Revenue Service (the
"IRS") granted the Company's request for a waiver of the minimum funding
standard for the plan year ended February 29, 1996, conditioned upon (1) eight
quarterly payments by the Company to the Plan of $33,000 each beginning with
the calendar quarter ended December 31, 1996 and (2) a credit balance equal to
the unamortized balance of the waiver (estimated to be approximately $175,000)
being maintained in the Plan's funding standard account for each plan year
commencing on or after March 1, 1997.
After giving effect to the waiver granted by the IRS, management
believes that it has adequately provided in the Company's balance sheet (in
accrued expenses, fees and other) for the Plan's unfunded accrued liability. If
the conditions described above are not satisfied, the waiver could be declared
null and void.
NOTE 3 - LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss, after
giving effect to dividends on preferred stock, by the weighted average number of
common shares and common share equivalents outstanding during each period.
Convertible securities that are deemed to be common share equivalents are
assumed to have been converted at the beginning of each period. The Company's
common share equivalents and convertible issues were anti-dilutive at May 31,
1997 and 1996 and, therefore, were not included in the loss per share
computations for these periods. The weighted average number of shares used to
compute per share amounts was 31,587,000 for the three-month period ended May
31, 1997 and 31,690,000 for the three-month period ended May 31, 1996, inclusive
of Class B shares.
10
<PAGE> 11
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
11
<PAGE> 12
THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(May 31, 1997)
The following discussion and analysis should be read in conjunction
with the Company's unaudited Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in Item 1 of Part I of this Report:
LIQUIDITY AND CAPITAL RESOURCES
The cash flow which the Company receives from the $2,000,000 promissory
note acquired in connection with the February 1996 disposition of its operating
subsidiaries and the fee income generated from a subsidiary's participation in
mortgage financing activities have enabled the Company to meet its current cash
requirements and are believed to be adequate to enable the Company to avoid any
serious cash flow shortages in the near term.
RESULTS OF OPERATIONS
The Company's net losses for the three-month periods ended May 31,
1997 and 1996 result almost entirely from the interest accrual attributable to
the indebtedness owed to related parties.
12
<PAGE> 13
PART II - OTHER INFORMATION
Not Applicable
13
<PAGE> 14
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.
THE ARLEN CORPORATION
(Registrant)
By: /s/ Allan J. Marrus
-------------------------------------
Allan J. Marrus, President
Date: September 2, 1997
By: /s/ Stanley Garber
-------------------------------------
Stanley Garber, Treasurer
Date: September 2, 1997
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 916
<PP&E> 162
<DEPRECIATION> 111
<TOTAL-ASSETS> 1,144
<CURRENT-LIABILITIES> 8,397
<BONDS> 135,475
0
1,992
<COMMON> 30,804
<OTHER-SE> (175,524)
<TOTAL-LIABILITY-AND-EQUITY> 1,144
<SALES> 0
<TOTAL-REVENUES> 459
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,696
<INCOME-PRETAX> (2,516)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,516)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
