<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 November 30, 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 - 29,587,633 shares outstanding as of January 5, 1998
1
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THE ARLEN CORPORATION AND SUBSIDIARIES
INDEX
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PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets -- November 30, 1997 (unaudited) and 4
February 28, 1997
Consolidated statements of operations -- Nine and three
months ended November 30, 1997 and 1996 (unaudited) 5
Consolidated statements of cash flows -- Nine months
ended November 30, 1997 and 1996 (unaudited) 6-7
Notes to consolidated financial statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-11
PART II. OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
3
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000s Omitted)
<TABLE>
<CAPTION>
November 30, February 28,
1997 1997
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9 $ 4
Note receivable due from related party- current portion
net of unamortized discount of $0 and $35 826 887
--------- ---------
TOTAL CURRENT ASSETS 835 891
PROPERTY AND EQUIPMENT, net 40 51
OTHER ASSETS, including amounts due from
former subsidiaries 59 181
--------- ---------
TOTAL ASSETS $ 934 $ 1,123
========= =========
LIABILITIES AND CAPITAL DEFICIT
CURRENT
LIABILITIES:
Notes payable $ 137 $ 137
Accrued interest payable (including $6 and $4 due from related
parties 243 213
Accrued expenses, fees and other (Note 3) 7,525 7,013
Current portion of long-term obligations due
to related parties 829 829
--------- ---------
TOTAL CURRENT LIABILITIES 8,734 8,192
AMOUNTS DUE TO RELATED PARTIES 140,233 133,143
--------- ---------
TOTAL LIABILITIES 148,967 141,335
COMMITMENTS AND CONTINGENCIES (Note 3)
CAPITAL DEFICIT (148,033) (140,212)
--------- ---------
TOTAL LIABILITIES AND CAPITAL DEFICIT $ 934 $ 1,123
========= =========
</TABLE>
See notes to consolidated financial statements
4
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THE ARLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended
November 30, November 30,
------------ ------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
GENERAL & ADMINISTRATIVE
EXPENSES ($ 894) ($1,039) ($ 309) ($ 459)
OTHER (EXPENSES) INCOME:
Interest expense (including amounts
due to related parties of $8,160 and
$2,748 in 1997 and $7,574 and $2,535
in 1996) (8,191) (7,912) (2,759) (2,647)
Interest income from related parties 1,105 1,181 368 411
Other Income, net 159 390 70 247
------- ------- ------- -------
Net loss ($7,821) ($7,380) ($2,630) ($2,448)
======= ======= ======= =======
LOSS PER COMMON SHARE ($ 0.25) ($ 0.23) ($ 0.08) ($ 0.07)
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements
5
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THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
November 30,
------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($7,821) ($7,380)
------- -------
Adjustments to reconcile net loss
to cash provided by operating
activities:
Depreciation and amortization 17 16
Amortization on note discount (35) (98)
Increase in accrued interest due related parties
in exchange for interest 7,090 6,485
Changes in assets and liabilities
(Increase) decrease in assets:
Other assets 122 4
Increase (decrease) in liabilities:
Accrued interest payable 30 24
Accrued other liabilities 512 279
------- -------
Total adjustments 7,736 6,710
------- -------
Net cash used in operating activities (85) (670)
------- -------
</TABLE>
See notes to consolidated financial statements
6
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THE ARLEN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
($000s Omitted)
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Nine months ended
November 30,
------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on notes receivable 96 714
Acquisition of property and equipment (6) --
------- -------
Net cash provided by investing activities 90 714
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings -- (42)
------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 5 2
CASH AND CASH EQUIVALENTS, at
February 28, 1997 and February 29,1996 4 10
------- -------
CASH AND CASH EQUIVALENTS, at
November 30, 1997 and 1996 $ 9 $ 12
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months ended
November 30, 1997 and 1996 for interest $ 1,069 $ 1,092
======= =======
</TABLE>
See notes to consolidated financial statements
7
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THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(November 30, 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 nine-month periods ended
November 30, 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 November 30, 1997, the
Company had a working capital deficiency of $7,899,000 and a capital deficit of
$148,033,000. Currently, the Company meets its operating expenses almost
entirely with 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.
8
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THE ARLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(November 30, 1997)
===============================================================================
NOTE 2 - RECLASSIFICATION
Certain November 30, 1996 financial staement items have been
reclassified to conform to the November 30, 1997 presentation.
NOTE 3 - 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 (all payments of which, required to
date, have been made, though not according to the quarterly payment schedule)
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.
Based upon 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 have not been fully complied with or the conditions remaining to
be fulfilled are not fully 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 November
30, 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 nine-month periods
ended November 30, 1997 and 31,690,000 for the three- and nine-month periods
ended November 30, 1996, inclusive of Class B shares.
9
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
10
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THE ARLEN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
(November 30, 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 Company is dependent upon the cash flow which it receives from the
$2,000,000 promissory note acquired in connection with the February 1996
disposition of its operating subsidiaries to meet its current cash requirements.
Such proceeds are believed to be adequate to enable the Company to avoid any
serious cash flow shortages in the near term. However, with such promissory note
expected to be paid in full within the next 12-month period and the Company not
anticipating any further meaningful current fee income from participation in
mortgage financing transactions, management is actively seeking transactions
which will produce future cash flow in the post-1998 period (though there can
be no assurance that management will be successful in consummating any such
transactions).
RESULTS OF OPERATIONS
The lower other income, net, generated in the three months ended
November 30, 1997, when compared with such other income in the same period of
the prior fiscal year, reflects a decline in income from the Company's
participation in mortgage financing transactions.
The decrease in third-quarter general and administrative expenses from
1996 to 1997 arose primarily from a reduction in professional fees.
The Company's net losses for the three-month periods ended November 30,
1997 and 1996 result from the interest expense attributable to the indebtedness
owed to related parties.
11
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PART II - OTHER INFORMATION
Not Applicable
12
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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: January 14, 1998
By: /s/ Stanley Garber
-------------------------------------
Stanley Garber, Treasurer
Date: January 14, 1998
13
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<ARTICLE> 5
<CIK> 0000007346
<NAME> ARLEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 835
<PP&E> 161
<DEPRECIATION> 121
<TOTAL-ASSETS> 934
<CURRENT-LIABILITIES> 8,734
<BONDS> 140,233
0
1,992
<COMMON> 30,804
<OTHER-SE> (180,829)
<TOTAL-LIABILITY-AND-EQUITY> 934
<SALES> 0
<TOTAL-REVENUES> 1,264
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,191
<INCOME-PRETAX> (7,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,821)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
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