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Previous: ANDERSEN GROUP INC, 10-Q, 1997-10-15 |
Next: ARMCO INC, S-4/A, 1997-10-15 |
<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 August 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 - 29,587,619 shares outstanding as of
October 3, 1997
1
<PAGE> 2
THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX
===============================================================================
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheet -- August 31, 1997 (unaudited) 4
Consolidated balance sheet -- February 28, 1997 5
Consolidated statements of operations -- Six and three
months ended August 31, 1997 and 1996 (unaudited) 6
Consolidated statements of cash flows -- Six months
ended August 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 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
3
<PAGE> 4
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
August 31, 1997
($000s Omitted)
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22
Note receivable - current portion,
net of unamortized discount of $4 882
---------
TOTAL CURRENT ASSETS 904
PROPERTY AND EQUIPMENT, net 45
OTHER ASSETS, including amounts due from
former subsidiaries 85
---------
TOTAL ASSETS $1,034
=========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Notes payable $ 137
Accrued interest payable (including $5 due to related
parties) 233
Accrued expenses, fees and other (Note 2) 7,393
Current portion of long-term obligations due
to related parties 829
---------
TOTAL CURRENT LIABILITIES 8,592
AMOUNTS DUE TO RELATED PARTIES 137,845
---------
TOTAL LIABILITIES 146,437
COMMITMENTS AND CONTINGENCIES (Note 2)
CAPITAL DEFICIT (145,403)
---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $1,034
=========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, 1997
($000s Omitted)
===============================================================================
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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>
Six months ended Three months ended
August 31, August 31,
--------- ---------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
GENERAL & ADMINISTRATIVE
EXPENSES ($585) ($581) ($306) ($301)
OTHER (EXPENSES) INCOME:
Interest expense (including amounts
due to related parties of $5,412 and
$2,730 in 1997 and $5,039 and $2,531
in 1996) (5,432) (5,265) (2,736) (2,643)
Interest income 737 770 367 734
Other Income, net 89 144 - -
-------- -------- -------- --------
Net loss ($5,191) ($4,932) ($2,675) ($2,210)
======== ======== ======== ========
LOSS PER COMMON SHARE ($0.16) ($0.15) ($0.08) ($0.07)
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
Six months ended
August 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($5,191) ($4,932)
-------- --------
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization 12 11
Amortization on note discount (31) (70)
Increase in accrued interest due related parties
in exchange for interest 5,412 5,040
Changes in assets and liabilities
(Increase) decrease in assets
Other assets 96 4
Increase (decrease) in liabilities:
Accrued interest payable 20 15
Accrued other liabilities 380 213
-------- --------
Total adjustments 5,889 5,213
-------- --------
Net cash provided by operating activities 698 281
-------- --------
</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> Six months ended
August 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (6) 0
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on notes receivable 36 466
Payments on debt due to related parties (710) (703)
Principal payments on long-term borrowings - (40)
-------- --------
Net cash used in financing activities (674) (277)
-------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 18 4
CASH AND CASH EQUIVALENTS, at
February 28, 1997 and February 29, 1996 4 10
-------- --------
CASH AND CASH EQUIVALENTS, at
August 31, 1997 and 1996 $ 22 $ 14
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six months ended
August 31, 1997 and 1996 for interest $ 710 $ 707
======== ========
</TABLE>
See notes to consolidated financial statements
8
<PAGE> 9
THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(August 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- and six-month periods ended
August 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 August 31, 1997, the Company
had a working capital deficiency of $7,688,000 and a capital deficit of
$145,403,000. 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)
(August 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 August 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- and six-month periods
ended August 31, 1997 and 31,690,000 for the three- and six-month periods ended
August 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 POSITION AND RESULTS OF OPERATIONS
(August 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 August 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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) The Registrant filed a Current Report on Form 8-K, dated August
15, 1997, with respect to Item 5 (Other Events).
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: October 10, 1997
By: /s/ Stanley Garber
-------------------------------------
Stanley Garber, Treasurer
Date: October 10, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000007346
<NAME> ARLEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 904
<PP&E> 161
<DEPRECIATION> 116
<TOTAL-ASSETS> 1,034
<CURRENT-LIABILITIES> 8,592
<BONDS> 137,845
0
1,992
<COMMON> 30,804
<OTHER-SE> (178,199)
<TOTAL-LIABILITY-AND-EQUITY> 1,034
<SALES> 0
<TOTAL-REVENUES> 826
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,432
<INCOME-PRETAX> (5,191)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,191)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,191)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
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