U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 1996
Commission File Number 0-25296
ARISTO INTERNATIONAL CORPORATION
-------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2706304
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
152 WEST 57TH STREET,
NEW YORK, NEW YORK 10019
-------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 586-2400
-------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------
(Former Name and Former Address, if Changed Since Last Report)
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.
Yes [X] No [_]
Transitional Small Business Disclosure Format (check one)
Yes [_] No [X]
As of September 13, 1996, there were 14,483,144 shares of the
Registrant's common stock outstanding.
<PAGE>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
---------------------
Item 1 (a) Consolidated Balance Sheets as of July 31,
1996 and October 31, 1995................................3
(b) Consolidated Statements of Operations for the
Three Months Ended July 31, 1996 and 1995; Nine
Months Ended July 31, 1996 and 1995 and for the
Cumulative Period June 4, 1990
(Inception) to July 31, 1996 ............................4
(c) Consolidated Statements of Stockholders'
Equity for the Years Ended October 31, 1991, 1992
1993, 1994, 1995 and for the Period from
June 4, 1990 (Inception) to July 31, 1996................5
(d) Consolidated Statements of Cash Flows for the
Nine Months Ended July 31, 1996 and 1995
and for the Cumulative Period June 4, 1990
(Inception) to July 31, 1996.............................7
(e) Notes to Consolidated Financial Statements..............10
Item 2 Management's Discussion and Analysis of Financial
Conditions and Results of Operations..............................12
PART II OTHER INFORMATION
-----------------
Item 1 Legal Proceedings.................................................15
Item 6 Exhibits and Reports on Form 8-K..................................15
SIGNATURES...................................................................15
-2-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND OCTOBER 31, 1995
<TABLE>
<CAPTION>
ASSETS: July 31,
1996
------------ October, 31
(Unaudited) 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 544,104 $ 540,297
Restricted cash 446,168 442,430
Marketable securities 1,500
Prepaid expenses and other current assets 253,431 236,319
------------ ------------
Total current assets 1,243,703 1,220,546
Fixed assets - at cost, net 646,250 252,456
Patents, net 72,738 77,034
Capitalized software, net 7,041,498 7,907,937
Goodwill, net 1,034,813 1,164,161
Other assets 439,931 426,195
------------ ------------
Total assets $ 10,478,933 $ 11,048,329
============ ============
LIABILITIES and STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses $ 2,054,345 $ 661,045
Notes payable - bank 406,000 406,000
Convertible term loans - stockholders 450,000 375,000
Payable to stockholder 420,000 500,000
Capital leases - current 65,583 25,313
------------ ------------
Total current liabilities 3,395,928 1,967,358
Convertible term loans - stockholders 1,976,500 565,000
Capital leases - long term 164,233 59,209
Deferred rent 148,530 158,891
------------ ------------
Total liabilities 5,685,191 2,750,458
Stockholder's equity:
Preferred stock, $.001 par value; authorized
1,000,000 shares; issued and outstanding
0 and 33,350, respectively 33
Common stock, $.001 par value; authorized
19,000,000 shares; issued and outstanding
13,632,044 and 13,199,945, respectively 13,632 13,200
Additional paid in-capital 23,965,229 21,871,438
Deferred compensation expense (1,846,429)
Deficit accumulated during the development stage (19,185,119) (11,740,371)
------------ ------------
Total stockholders' equity 4,793,742 8,297,871
------------ ------------
Total liabilities and stockholders' equity $ 10,478,933 $ 11,048,329
============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-3-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995;
NINE MONTHS ENDED JULY 31, 1996 AND 1995 AND FOR THE
CUMULATIVE PERIOD JUNE 4, 1990 (INCEPTION) TO JULY 31, 1996
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31, Cumulative
------------------------- ------------------------- Since
1996 1995 1996 1995 June 4, 1990*
----------- ----------- ----------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Royalty revenue $ 2,800 $ 2,989 $ 6,002 $ 4,749 $ 123,001
Production revenue 9,511 - 192,347 - 340,647
----------- ----------- ----------- ----------- -------------
Total revenue 12,311 2,989 198,349 4,749 463,648
Selling, general and administrative expenses (2,260,644) (1,028,823) (4,835,939) (2,246,117) (14,293,370)
Research and development expenses (1,267,725) (300) (2,781,019) (321) (4,403,872)
Interest expense (79,282) (18,772) (167,738) (59,029) (401,883)
Interest and other income 18,924 8,879 38,961 90,632 147,710
----------- ----------- ----------- ----------- -------------
Net loss (3,576,416) (1,036,027) (7,547,386) (2,210,086) (18,487,767)
Dividends on preferred stock - - (15,219) - (19,804)
----------- ----------- ----------- ----------- -------------
Net loss applicable to common shareholders $(3,576,416) $(1,036,027) $(7,562,605) $(2,210,086) $ (18,507,571)
=========== =========== =========== =========== =============
Weighted average number of common
shares outstanding 13,554,091 9,714,981 13,554,091 9,714,981
========== ========= ========== =========
Net loss per share $ (0.26) $ (0.11) $ (0.56) $ (0.23)
========== ========= ========== =========
</TABLE>
* Excludes cumulative losses of The Astro-Stream Corporation of $795,405 at
the time of the Merger. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.
- History" in Part I, Item 2 of this report.
The accompanying notes are an integral
part of these consolidated financial statements.
-4-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1991, 1992, 1993, 1994 AND 1995 AND FOR THE
PERIOD FROM JUNE 4,1990 (INCEPTION) TO JULY 31, 1996(UNAUDITED)
[TABLE 1 OF 2]
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------- ------------------- Paid in
Shares Amount Shares Amount Capital
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for
initial capitalization ($0.18 per share) 3,334,780 $ 3,335 $ 596,665
Sale of common stock during November
for cash ($0.12 per share) 1,764,099 1,764 218,526
Sale of common stock during October
for cash ($1.29 per share) 155,067 155 199,845
Exchange of common stock during October for
services at estimated value ($1.28 per share) 78,367 78 99,922
Net loss for the year ended October 31, 1991
- -----------------------------------------------------------------------------------------------------------
Balance, October 31, 1991 5,332,313 5,332 1,114,958
Sale of common stock during the year
for cash ($0.85 per share) 1,589,023 1,589 1,348,411
Sale of common stock during the year
for cash ($1.17 per share) 235,102 235 274,765
Exchange of common stock during August for
services at estimated value ($1.28 per share) 78,367 79 99,921
Net loss for the year ended October 31, 1992
- -----------------------------------------------------------------------------------------------------------
Balance, October 31, 1992 7,234,805 7,236 2,838,055
Sale of common stock during the year
for cash ($1.63 per share) 611,932 612 999,388
Sale of common stock during the year
for cash ($1.28 per share) 195,085 195 249,805
Exchange of common stock during May for
services at estimated value ($1.29 per share) 116,717 117 149,883
Exchange of common stock during October for
services at estimated value ($1.33 per share) 15,006 15 19,985
Exchange of common stock during October for
patent rights at estimated value
($1.28 per share) 39,184 39 49,961
Purchase of treasury stock for cash
($0.04 per share)
Net loss for the year ended October 31, 1993
- -----------------------------------------------------------------------------------------------------------
Balance, October 31, 1993 8,212,729 8,214 4,307,077
Sale of common stock during the year
for cash ($1.46 per share) 1,030,447 1,030 1,498,970
Exchange of common stock during January for
services at estimated value ($1.33 per share) 15,007 15 19,985
Exchange of common stock during January for
services at estimated value ($1.46 per share) 34,181 34 49,966
Conversion of note payable and accrued interest
into common stock ($1.53 per share) 171,741 172 261,892
Conversion of note payable into common stock
($1.26 per share) 159,236 159 199,841
Repayment of stock subscription receivable
Retirement of treasury stock during October (1,667,390) (1,667) (58,333)
Net loss for the year ended October 31, 1994
- -----------------------------------------------------------------------------------------------------------
Balance, October 31, 1994 7,955,951 7,957 6,279,398
Conversion of notes payable into
common stock ($1.23 per share) 834,529 835 1,024,165
Sale of common stock during November
for cash ($1.53 per share) 235,936 236 359,764
Sale of common stock during March
for cash ($2.22 per share) 450,195 450 999,550
Exchange of common stock in March for
graphic illustrations ($2.22 per share) 115,050 115 255,440
Issuance of common stock per anti-dilution
provision 38,350 38 (38)
Sale of preferred stock in May for
cash ($3.00 per share) 33,350 $ 33 -- -- 100,017
Equity acquired from the reverse
acquisition with Astro-Stream 1,098,997 1,099 806,205
Issuance of common stock as a result of the
acquisition of Borta, Inc. ($4.67 per share) 1,818,182 1,818 8,498,182
Grant of common stock ($5.50 per share) 357,143 357 1,963,929
Sale of common stock during August for
cash ($4.50 per share) 66,666 67 299,933
Sale of common stock during August for
cash ($5.50 per share) 93,500 94 514,156
Exchange of common stock in August for
consulting services ($6.50 per share) 25,000 25 162,475
Exchange of common stock in August for
consulting services ($5.75 per share) 3,687 4 21,196
Exchange of common stock in August for
consulting services ($5.50 per share) 395 -- 2,172
Sale of common stock during September
for cash ($5.50 per share) 96,364 96 529,904
Sale of common stock during October for
cash ($5.50 per share) 10,000 10 54,990
Amortization of deferred compensation expense
Dividend on preferred stock
Net loss for the year ended October 31, 1995
- -----------------------------------------------------------------------------------------------------------
Balance, October 31, 1995 33,350 33 13,199,945 13,201 21,871,438
</TABLE>
[TABLE 2 OF 2]
<TABLE>
<CAPTION>
Deficit
Accumulated Common Stock Held
During the Deferred in Treasury Stock
Development Compensation ---------------- Subscription
Stage Expense Shares Amount Receivable Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
initial capitalization ($0.18 per share) $ 600,000
Sale of common stock during November
for cash ($0.12 per share) 220,290
Sale of common stock during October
for cash ($1.29 per share) 200,000
Exchange of common stock during October for
services at estimated value ($1.28 per share) 100,000
Net loss for the year ended October 31, 1991 (1,478,158) (1,478,158)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1991 (1,478,158) (357,868)
Sale of common stock during the year
for cash ($0.85 per share) 1,350,000
Sale of common stock during the year
for cash ($1.17 per share) 275,000
Exchange of common stock during August for
services at estimated value ($1.28 per share) 100,000
Net loss for the year ended October 31, 1992 (1,480,812) (1,480,812)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1992 (2,958,970) (113,679)
Sale of common stock during the year
for cash ($1.63 per share) $ (80,000) 920,000
Sale of common stock during the year
for cash ($1.28 per share) 250,000
Exchange of common stock during May for
services at estimated value ($1.29 per share) 150,000
Exchange of common stock during October for
services at estimated value ($1.33 per share) 20,000
Exchange of common stock during October for
patent rights at estimated value
($1.28 per share) 50,000
Purchase of treasury stock for cash
($0.04 per share) (1,667,390) $(60,000) (60,000)
Net loss for the year ended October 31, 1993 (1,636,310) (1,636,310)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1993 (4,595,280) (1,667,390) (60,000) (80,000) (419,989)
Sale of common stock during the year
for cash ($1.46 per share) 1,500,000
Exchange of common stock during January for
services at estimated value ($1.33 per share) 20,000
Exchange of common stock during January for
services at estimated value ($1.46 per share) 50,000
Conversion of note payable and accrued interest
into common stock ($1.53 per share) 262,064
Conversion of note payable into common stock
($1.26 per share) 200,000
Repayment of stock subscription receivable 80,000 80,000
Retirement of treasury stock during October 1,667,390 60,000 --
Net loss for the year ended October 31, 1994 (2,228,644) (2,228,644)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1994 (6,823,924) 0 0 0 (536,569)
Conversion of notes payable into
common stock ($1.23 per share) 1,025,000
Sale of common stock during November
for cash ($1.53 per share) 360,000
Sale of common stock during March
for cash ($2.22 per share) 1,000,000
Exchange of common stock in March for
graphic illustrations ($2.22 per share) 255,555
Issuance of common stock per anti-dilution
provision --
Sale of preferred stock in May for
cash ($3.00 per share) 100,050
Equity acquired from the reverse
acquisition with Astro-Stream (795,405) 11,899
Issuance of common stock as a result of the
acquisition of Borta, Inc. ($4.67 per share) 8,500,000
Grant of common stock ($5.50 per share) $ (1,964,286) --
Sale of common stock during August for
cash ($4.50 per share) 300,000
Sale of common stock during August for
cash ($5.50 per share) 514,250
Exchange of common stock in August for
consulting services ($6.50 per share) 162,500
Exchange of common stock in August for
consulting services ($5.75 per share) 21,200
Exchange of common stock in August for
consulting services ($5.50 per share) 2,172
Sale of common stock during September
for cash ($5.50 per share) 530,000
Sale of common stock during October for
cash ($5.50 per share) 55,000
Amortization of deferred compensation expense 117,857 117,857
Dividend on preferred stock (4,585) (4,585)
Net loss for the year ended October 31, 1995 (4,116,457) (4,116,457)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1995 (11,740,371) (1,846,429) -- -- -- 8,297,871
</TABLE>
(1) All common shares information has been restated since inception to reflect
conversion of the outstanding shares of Aristo's common stock into 90% of
the common stock of Astro-Stream pursuant to the Merger.
-5-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
FOR THE YEARS ENDED OCTOBER 31, 1991, 1992, 1993, 1994 AND 1995 AND FOR THE
PERIOD FROM JUNE 4,1990 (INCEPTION) TO JULY 31, 1996(UNAUDITED)
[TABLE 1 OF 2]
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------- ------------------- Paid in
Shares Amount Shares Amount Capital
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sale of common stock during
November for cash ($5.50 per share) 60,000 60 329,940
Sale of common stock during
December for cash ($5.50 per share) 164,000 164 901,836
Conversion of notes payable into common
stock in December ($3.00 per share) 66,667 67 199,933
Sale of preferred stock during January
for cash ($5.50 per share) 40,000 40 219,960
Exchange of common stock in January for
consulting services ($5.50 per share) 500 1 2,749
Sale of common stock during February for
cash ($5.50 per share) 10,000 10 54,990
Sale of common stock during March for
cash ($5.50 per share) 60,000 60 329,940
Sale of common stock during April for
cash ($5.50 per share) 56,363 56 309,944
Write-off of deferred compensation expense (357,143) (357) (1,963,929)
Sale of common stock during May for
cash ($5.50 per share) 59,362 59 326,432
Exchange of common stock in May for
consulting services ($5.76 per share) 421 0 2,423
Exchange of common stock in May for
consulting services ($4.82 per share) 1,100 1 5,302
Conversion of preferred stock into
common stock in May (73,350) (73) 58,191 58 15
Sale of common stock during June for
cash ($5.50 per share) 57,638 58 316,951
Exchange of common stock in June for
consulting services ($5.50 per share) 1,000 1 5,499
Sale of common stock during July for
cash ($5.50 per share) 152,000 152 835,848
Exchange of common stock in July for
consulting services ($5.50 per share) 12,000 12 65,988
Exchange of common stock in August for
product rights ($5.00 per share) 30,000 30 149,970
Dividend on preferred stock
Net loss for the nine months ended
July 31, 1996
- ---------------------------------------------------------------------------------------------------------------
Balance, July 31, 1996 (unaudited) -- $ -- 13,632,044 $ 13,632 $23,965,228
</TABLE>
[TABLE 2 OF 2]
<TABLE>
<CAPTION>
Deficit
Accumulated Common Stock Held
During the Deferred in Treasury Stock
Development Compensation ---------------- Subscription
Stage Expense Shares Amount Receivable Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock during
November for cash ($5.50 per share) 330,000
Sale of common stock during
December for cash ($5.50 per share) 902,000
Conversion of notes payable into common
stock in December ($3.00 per share) 200,000
Sale of preferred stock during January
for cash ($5.50 per share) 220,000
Exchange of common stock in January for
consulting services ($5.50 per share) 2,750
Sale of common stock during February for
cash ($5.50 per share) 55,000
Sale of common stock during March for
cash ($5.50 per share) 330,000
Sale of common stock during April for
cash ($5.50 per share) 310,000
Write-off of deferred compensation expense 117,857 1,846,429
Sale of common stock during May for --
cash ($5.50 per share) 326,491
Exchange of common stock in May for
consulting services ($5.76 per share) 2,423
Exchange of common stock in May for
consulting services ($4.82 per share) 5,303
Conversion of preferred stock into
common stock in May --
Sale of common stock during June for
cash ($5.50 per share) 317,009
Exchange of common stock in June for
consulting services ($5.50 per share) 5,500
Sale of common stock during July for
cash ($5.50 per share) 836,000
Exchange of common stock in July for
consulting services ($5.50 per share) 66,000
Exchange of common stock in August for
product rights ($5.00 per share) 150,000
Dividend on preferred stock (15,219) (15,219)
Net loss for the nine months ended
July 31, 1996 (7,547,386) (7,547,386)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1996 (unaudited) $(19,185,119) $ -- -- -- -- $ 4,793,741
</TABLE>
(1) All common shares information has been restated since inception to reflect
conversion of the outstanding shares of Aristo's common stock into 90% of
the common stock of Astro-Stream pursuant to the Merger.
-6-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1995 AND FOR THE
CUMULATIVE PERIOD JUNE 4, 1990 (INCEPTION) TO JULY 31, 1996
<TABLE>
<CAPTION>
Nine Months Ended
July 31, Cumulative
---------------------------- Since
1996 1995 June 4, 1990
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss during development stage $ (7,429,529) $ (2,210,086) $(18,369,910)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,094,480 16,911 1,635,082
Expenses paid by issuance of common stock 231,977 -- 1,457,850
Deferred rent (10,361) (10,361) 148,530
Loss on disposal of fixed asset -- 6,208 19,200
Net realized loss on sale of marketable securities 38 -- 51,883
Net unrealized gain on marketable securities -- -- (7,713)
Changes in assets and liabilities:
Increase in prepaid expenses and other current assets (17,112) (145,495) (197,398)
Increase in accounts payable and accrued expenses 1,393,300 85,224 1,910,254
------------ ------------ ------------
Net cash used in operating activities (4,737,207) (2,257,599) (13,352,222)
------------ ------------ ------------
Cash flows from investing activities:
Investment in Borta, Inc., net of cash acquired -- (222,000) (238,615)
Expenditures for equipment, leasehold improvements, patents
and organization costs (342,896) (22,724) (604,621)
Purchase of marketable securities -- (892,733) (1,517,601)
Sales of marketable securities 1,462 926,706 1,473,431
Purchase of computer software -- -- (110,000)
Increase in other assets (13,737) (19,919) (184,376)
Increase in restricted cash (3,738) (100,000) (446,168)
------------ ------------ ------------
Net cash used in investing activities (358,909) (330,670) (1,627,950)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from notes payable - bank -- -- 359,857
Proceeds from notes payable - stockholders 700,000 793,500
Repayments of notes payable - stockholders (75,000) -- (418,500)
Increase in book overdraft -- 48,878 --
Proceeds acquired in connection with the Astro-Stream merger -- 59,494 59,494
Proceeds from issuance of preferred stock 220,000 -- 320,050
Proceeds from issuance of common stock 3,283,643 1,460,050 10,838,180
Proceeds from convertible term loans 1,686,500 3,651,500
Purchase of treasury stock -- -- (60,000)
Dividends on preferred stock (15,219) -- (19,804)
------------ ------------ ------------
Net cash provided by financing activities 5,099,924 2,268,422 15,524,277
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents 3,808 (319,847) 544,104
Cash and cash equivalents, beginning of period 540,296 502,993 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 544,104 $ 183,146 $ 544,104
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-7-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental schedule of noncash investing and financing activities:
The Company, on June 4, 1990, issued 3,334,780 shares of common stock in
exchange for technical know-how and patents valued at $600,000.
During October 1993, the Company issued 39,184 shares of common stock in
exchange for the rights to a patent valued at $50,000.
During 1994, notes payable of $250,000 and $12,064 of accrued interest thereon
were converted into 171,741 shares of common stock.
During 1994, a note payable of $200,000 was converted into 159,236 shares of
commmon stock.
During 1994, the Company retired 1,667,390 shares of treasury stock valued at
$60,000.
During 1995, convertible term loans of $1,025,000 were converted into 834,529
shares of common stock.
During 1995, the Company issued 115,050 shares of common stock in exchange for
original graphic illustrations valued at $255,555.
In connection with the Merger with Astro-Stream, the Company assumed
liabilities of $47,595 and acquired cash of $59,494.
The Company purchased all of the capital stock of Borta, Inc. The details of
the business acquired are as follows:
Fair value of current assets acquired $ 67,418
Fair value of fixed assets acquired 43,258
Intangible assets of business acquired:
Capitalized software 8,086,750
Excess of cost over net assets acquired (goodwill) 5,008,049
Deferred tax liability (3,800,772)
Liabilities assumed (104,703)
Intercompany payable to the Company (50,000)
-----------
Total purchase price consideration 9,250,000
Common stock issued 8,500,000
-----------
Total cash to be paid to sellers 750,000
Liabilities to former stockholder 500,000
Cash paid to sellers at closing of the acquisition 250,000
Less, cash acquired 11,385
-----------
Net cash payment at closing of the acquisition $ 238,615
===========
In connection with the purchase of Borta, the Company issued 357,143 shares of
restricted common stock valued at $1,964,286 to the President of Borta as
deferred compensation. These shares are subject to forfeiture (see note 3).
-8-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
During 1995, the Company issued 25,000 shares of common stock in exchange for
consulting services valued at $162,500.
During 1995, the Company issued 4,082 shares of common stock in exchange for
consulting services valued at $23,372.
During December 1995, convertible term loans of $200,000 were converted into
66,667 shares of common stock.
During 1996, the Company issued 14,921 shares of common stock in exchange for
consulting services valued at $81,977.
During 1996, the Company issued 58,191 shares of common stock in exchange for
the 73,350 outstanding shares of preferred stock.
During 1996, the Company issued 30,000 shares of common stock in exchange for
product rights valued at $150,000.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The interim unaudited financial statements reflect adjustments, consisting only
of normal recurring accruals, which are, in the opinion of the Company's
management, necessary for a fair presentation of the financial position and
results of operations for the periods presented. Sales and the net loss for any
interim period are not necessarily indicative of the results for a full year.
The financial statements have been prepared on a going-concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. The Company, as of July 31, 1996, has a working
capital deficiency of $2,152,225. The Company expects to incur substantial costs
and expenses during the ensuing twelve months as the Company continues to
develop new products and executes its new business strategy. The Company
believes that its demonstrated ability to raise capital through equity financing
(see Notes 2 and 7), together with available funds and cash flows expected to be
generated by operations, will be sufficient to meet its anticipated cash needs
for working capital expenditures for at least the next twelve months.
Thereafter, if cash generated by operations is insufficient to satisfy the
Company's liquidity requirements, the Company may need to raise additional funds
through public or private debt financing. If additional funds are raised through
the issuance of equity securities, the percentage ownership of then current
stockholders of the Company may be reduced and such equity securities may have
rights, preferences or privileges senior to those of the holders of the
Company's Common Stock. There can be no assurance that additional financing will
be available on terms favorable to the Company, or at all.
NOTE 2 - STOCK SUBSCRIPTIONS
Subsequent to July 31, 1996, the Company entered into common stock subscription
agreements whereby the Company will receive $3,500,000 in cash, in exchange for
700,000 shares of the Company's Common Stock from the first closing under a
Private Placement Memorandum. Subsequently, from the second closing under the
same Private Placement Memorandum, the Company entered into common stock
subscription agreements whereby the Company will receive an additional $400,000
in cash in exchange for 80,000 shares of the Company's Common Stock. As of
August 30, 1996, all amounts have been received.
NOTE 3 - DEFERRED COMPENSATION
On May 13, 1996, the Company, Borta's president ("President") and Borta's chief
operating officer ("COO") completed an agreement which provides for, among other
things, the resignation of the President and COO as officers and directors of
Borta, Inc. In connection therewith, the President and COO have surrendered all
options to purchase common stock previously granted to either of them, and the
President has surrendered 357,143 restricted shares of common stock previously
granted, together with any options, incentive payments or rights related
thereto. In connection with their severance benefits, the Company will pay to
each of the President and COO eight months salary, based on their current rates
of pay, over a six month period with the remaining balance payable on December
31, 1996. In addition, $425,000 remaining to be paid to the President pursuant
to his signing bonus with the Company is payable $5,000 upon the execution of
definitive agreements relating to the resignations, $150,000 on August 30, 1996,
and the balance on December 31, 1996.
NOTE 4 - FINANCING
On July 31, 1995, the Company issued a $240,000 note ("Original Note") maturing
on December 31, 1995 plus interest of $20,000. On December 29, 1995, the Company
issued a new note ("New Note") for $260,000 which represents the principal and
accrued interest on the Original Note. The New Note replaces and supersedes the
Original Note. Under the terms of the New Note, the principal is payable on
January 1, 1997 with quarterly interest payments of $13,000 payable on April 1,
1996; July 1, 1996; October 1, 1996 and January 1, 1997. On December 29, 1995,
the holder of the New Note indicated its intent to convert the New Note into
47,273 shares of common stock at a conversion price of $5.50 per share effective
January 1, 1997.
A $500,000 promissory note issued on December 29, 1995 has been replaced and
superseded on April 30, 1996 and again on July 31, 1996. The new note is payable
in one installment of $500,000 on December 31, 1996 and bears interest at a rate
equal to 10% per annum, payable on the last day of the month. The holder shall
have the option, until December 31, 1996, to convert the note into 90,909 shares
of common stock of the Company at an exercise price of $5.50 per share, in lieu
of payment of principal. On March 6, 1996 the holder of the note indicated its
interest to convert the note into 90,909 shares of the Company's common stock.
On February 12, 1996, the Company executed a $500,000 promissory note, as
amended, bearing interest at 12% per annum, payable on December 12, 1996, the
maturity date of the note. The holder of the note, until the maturity date,
shall have the right and option to convert the note into 90,909 shares of
restricted common stock. The holder also has a continuing contractual right to
receive 12.5% of the earnings before interest and taxes from licensing of music
and video CD's. As of July 31, 1996, no amounts have accrued with respect to the
contractual rights. In certain circumstances this contractual
-10-
<PAGE>
right is terminable by the Company and convertible into warrants to purchase
additional shares of the Company's common stock. On June 12, 1996, the holder of
the note indicated its intent to convert the note into 90,909 shares of the
Company's common stock.
On April 12, 1996, the Company executed a $450,000 promissory note, as amended,
bearing interest at 12% per annum, payable on August 15, 1996. The holder of the
note shall have the right to convert the note into 81,818 shares of common stock
at any time after the date of the note and prior to December 31, 1996. On August
22, 1996, principal and accrued interest were paid in full.
On June 27, 1996, the Company issued a promissory note to a stockholder for
$330,000 in cash, bearing interest at the prime lending rate, as published in
the Wall Street Journal, and payable on October 31, 1996. The Company shall have
the right to prepay the aggregate principal amount of the note, together with
accrued interest through the date of the prepayment without penalty or premium.
The stockholder shall have the option to acquire, until December 31, 1996,
120,000 shares of common stock of the Company for $660,000. On September 12,
1996 the holder of the note indicated its intent to convert the note into 60,000
shares of the Company's common stock.
NOTE 5 - RESTRICTED CASH
Included in restricted cash at July 31, 1996 is $100,000 held in escrow related
to a contested claim by the former shareholders of Astro-Stream Corporation and
the Company. Subsequent to July 31, 1996 all parties entered into a Stipulation
of Discontinuance pursuant to which the Company waived their rights to the
$100,000. As of July 31, 1996, the Company has accrued for this amount.
NOTE 6 - STOCK OPTIONS
Transactions involving stock option awards during the nine months ended July 31,
1996 are summarized below. The total number of options exercisable on July 31,
1996 was 201,000. As of July 31, 1996, shares available for future grants under
the 1994 Plan and 1995 Plan amounted to 105,000 and 839,285 respectively.
1994 1995 Exercise Price
Plan Plan Per Share
Options outstanding at October 31, 1995 300,000 642,859 $1.00-$8.00
Options granted 95,000 $5.50
Options cancelled 482,144 $1.00-$5.50
------- -------
Options outstanding at July 31, 1996 395,000 160,715
======= =======
The Board of Directors of the Company approved, subject to stockholder approval,
the adoption of the 1996 Stock option Plan (the "1996 Plan"). The 1996 Plan
provides for a maximum of 1,500,000 shares of the Company's common stock to be
issued in connection with stock option grants.
NOTE 7 - SUBSEQUENT EVENTS
Subsequent to July 31, 1996 the Company entered into a subscription agreement to
issue and sell 71,100 shares of common stock in exchange for $391,050 in cash.
As of September 14, 1996, all subscribed amounts have been received.
Additionally, the Company has received $130,000 as consideration for options to
purchase 20,000 shares of common stock. At such optionee's option, such
consideration may be refunded to such optionee at any time during the period
beginning 45 days after the date of the option and ending in January 1997.
-11-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company designs and develops location-based, pay-per-play and cash-prize
tournament electronic games and entertainment products which can link multiple
players in multiple locations via an Internet connection.
The Company's business reflects the growing trend to connect people via computer
networks and, as a result, to create new forms of interactive, social
entertainment. According to the Vending Times 1995 Census, total revenue in the
U.S. in 1994 for all coin-operated amusements was $6.8 billion. The U.S.
electronic video game business (which excludes pinball and redemption machines)
generated $2.3 billion of that revenue.
The Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company's networked entertainment
products are still being developed and have not generated any revenues to date.
Substantially all of the Company's revenues have been attributable to products
other than the networked entertainment products currently focused upon by the
Company. The Company's future financial performance will depend in large part
upon the successful development, introduction and customer acceptance of its
location-based networked entertainment products.
During the next twelve months, the Company expects to continue the development
of hardware and software for its networked, location-based entertainment
products. The Company intends to sell its products through a network of over one
hundred third party distributors.
The Company's employee base grew from ten full-time employees in fiscal 1994 to
approximately seventy full-time employees by early 1996. Continued expansion
will occur primarily in the design and development capabilities for Aristo's
products.
HISTORY
On May 3, 1995, Aristo International Corporation, a New York corporation (the
"Predecessor"), was merged (the "Merger") with and into the Company, which was
previously known as "The Astro-Stream Corporation." The Company was the
surviving corporation in the Merger and, pursuant to the Merger, the name of the
Company was changed to "Aristo International Corporation." Prior to the Merger,
the Company had no operations. The Predecessor was incorporated in 1990 to
invest in licensable and patentable consumer products for the mass market.
On July 31, 1995, the Company acquired 100% of the stock of Borta, Inc., an
entertainment software engineering and development company (the "Acquisition").
GENERAL
The Company's revenues historically have been comprised of software development
fees. Salaries of the software programmers, networking specialists, engineers
and graphic artists, as well as depreciation of the fixed assets used in the
development of hardware and software, are included in research and development.
The Company's financial statements do not contain a provision for income tax
expense from its inception through July 31, 1996 as the Company has incurred
operating losses since inception. As of October 31, 1995, the Company had
available unused net operating loss carry forwards of approximately $9,797,000,
which may provide future tax benefits, expiring in various years from 2006 to
2010. The Company has fully reserved these potential future tax benefits.
-12-
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED JULY 31, 1996 VS. JULY 31, 1995
Consolidated revenues for the nine months ended July 31, 1996 were $198,349 , an
increase of $193,600 as compared to the same period in 1995. Revenues from the
development of software represented 97% of the 1996 revenues. Royalties on the
Company's consumer products represented 3% of revenues in 1996 compared to 100%
of revenues in 1995.
Selling, general and administrative expenses for the nine months ended July 31,
1996 increased to $4,835,939 from $2,246,117 for the nine months ended July 31,
1995. Approximately 19%, or $485,198 of the increase in selling, general and
administrative expense was due to an increase in travel and related expenses.
This increase was the result of visits to potential digital entertainment
targets and travel to the Company's Virginia and California operating locations.
Selling, general and administrative for the Company's new business focus for its
networked, location-based entertainment products totaled $1,331,112 for the nine
months ended July 31, 1996; there was no comparable expense for the same period
in 1995. These expenses represent 51% of the total increase. Additionally, the
Company provided a severance reserve of $119,237 representing 5% of the
increase.
Research and development expenses increased to $2,781,019 for the nine months
ended July 31, 1996 from $321 for the nine months ended July 31, 1995. The
increase is attributable to the development of hardware systems, system
software, networked game technology and the design and implementation of
networked, multiplayer games. Expenses related to prototypes and final test
products are also included in this increase.
Interest and other income (expense) - net decreased $160,380 to ($128,777) for
the nine months ended July 31, 1996 from $31,603 during the same period in 1995.
The decrease is primarily due to an increase in interest expense in 1996 of
$108,709 as a result of additional borrowing offset, in part, by an increase in
interest income of $24,795 and a gain in 1995 from the settlement of a lawsuit
in the amount of $76,466.
COMPARISON OF QUARTER ENDED JULY 31, 1996 VS. JULY 31, 1995
Consolidated revenues for the three months ended July 31, 1996 were $12,311, as
compared to $2,989 for the same period in 1995. Revenues from the development of
software represented 23% of the 1996 revenues compared to 100% of revenues in
1995.
Selling, general and administrative expenses for the three months ended July 31,
1996 increased to $2,260,644 from $1,028,823 for the three months ended July 31,
1995. Approximately 20%, or $250,762, of the increase in selling, general and
administrative expense was due to an increase in travel and related expenses.
This increase was the result of visits to potential interactive multimedia
acquisition targets and travel to the Company's operating locations. Selling,
general and administrative for the Company's new business focus for its
networked, location-based entertainment products totaled $741,316 for the three
months ended July 31, 1996; there was no comparable expense for the same period
in 1995; these expenses represent 60% of the total increase.
Research and development expenses increased to $2,781,091 for the three months
ended July 31, 1996 from $300 for the three months ended July 31, 1995. The
increase is attributable to the development of hardware systems, system
software, networked game technology and the design and implementation of
networked, multiplayer games. Expenses related to prototypes and final test
products are also included in this increase.
Interest and other income (expense) - net decreased $50,465 to ($60,385) for the
three months ended July 31, 1996 from $(9,893) during the same period in 1995.
The decrease is primarily due to an increase in interest expense in 1996 of
$60,510 as a result of additional borrowing offset, in part, by an increase in
interest income of $10,514.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its activities with the sale of stock
and convertible notes for cash amounting to approximately $18,650,000 and with
the exchange of stock for approximately $1,163,000 in products and services. The
Company intends to use its best efforts to finance or obtain financing
sufficient for the Company's requirements.
The Company has a revolving credit facility with The Merchants Bank of New York
in the amount of $500,000. The facility expires on May 15, 1997. As of July 31,
1996, $406,000 had been drawn upon, of which $250,000 is collateralized by a
certificate of deposit.
-13-
<PAGE>
The Company expects to continue to increase expenditures in connection with new
product development and market expansion. Based on its available cash position,
its revolving credit facility and its demonstrated ability to raise capital
through equity financing, the Company believes that it has sufficient resources
to meet its financial requirements and operational needs over the next twelve
months.
CONVERTIBLE TERM LOANS
On July 31, 1995, the Company issued a $240,000 note ("Original Note") maturing
on December 31, 1995 plus interest of $20,000. On December 29, 1995, the Company
issued a new note ("New Note") for $260,000 which represents the principal and
accrued interest on the Original Note. The New Note replaces and supersedes the
Original Note. Under the terms of the New Note, the principal is payable on
January 1, 1997 with quarterly interest payments of $13,000 payable on April 1,
1996; July 1, 1996; October 1, 1996 and January 1, 1997. On December 29, 1995,
the holder of the New Note indicated its intent to convert the New Note into
47,273 shares of common stock at a conversion price of $5.50 per share effective
January 1, 1997.
A $500,000 promissory note issued on December 29, 1995 has been replaced and
superseded on April 30, 1996 and again on July 31, 1996. The new note is payable
in one installment of $500,000 on December 31, 1996 and bears interest at a rate
equal to 10% per annum, payable on the last day of the month. The holder shall
have the option, until December 31, 1996, to convert the note into 90,909 shares
of common stock of the Company at an exercise price of $5.50 per share, in lieu
of payment of principal, On March 6, 1996 the holder of the note indicated its
interest to convert the note into 90,909 shares of the Company's common stock.
On February 12, 1996, the Company executed a $500,000 promissory note, as
amended, bearing interest at 12% per annum, payable on December 12, 1996, the
maturity date of the note. The holder of the note, until the maturity date,
shall have the right and option to convert the note into 90,909 shares of
restricted common stock. The holder also has a continuing contractual right to
receive 12.5% of the earnings before interest and taxes from licensing of music
and video CD's. As of July 31, 1996, no amounts have accrued with respect to the
contractual rights. In certain circumstances this contractual right is
terminable by the Company and convertible into warrants to purchase additional
shares of the Company's common stock. On June 12, 1996, the holder of the note
indicated its intent to convert the note into 90,909 shares of the Company's
common stock.
On April 12, 1996, the Company executed a $450,000 promissory note, as amended,
bearing interest at 12% per annum, payable on August 15, 1996. The holder of the
note shall have the right to convert the note into 81,818 shares of common stock
at any time after the date of the note and prior to December 31, 1996. On August
22, 1996, principal and accrued interest were paid in full.
On June 27, 1996, the Company issued a promissory note to a stockholder for
$330,000 in cash, bearing interest at the prime lending rate, as published in
the Wall Street Journal, and payable on October 31, 1996. The Company shall have
the right to prepay the aggregate principal amount of the note, together with
accrued interest through the date of the prepayment without penalty or premium.
The stockholder shall have the option to acquire, until December 31, 1996,
120,000 shares of common stock of the Company for $660,000. On September 12,
1996, the holder of the note indicated its intent to convert the note into
60,000 shares of the Company's common stock.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the interpleader action filed by Kelley Drye & Warren
against the Corporation and the 439 former shareholders of
record of Astro-Stream Corporation, all parties have
entered into a Stipulation of Discontinuance, which was
executed by the Court. The Company anticipates that the
escrow deposit will be transferred to Continental Stock
Transfer and Trust Company for distribution, as a special
dividend, to the former shareholders of Astro-Stream. The
Corporation expects that the process will be completed
prior to the end of September 1996.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly authorized and caused the undersigned to sign this
Report on the Registrant's behalf.
Dated: September 19, 1996
ARISTO INTERNATIONAL CORPORATION
(formerly known as The Astro-Stream
Corporation)
By: /s/ Shmuel Cohen
---------------------------
Shmuel Cohen
President
By: /s/ Glenn P. Sblendorio
---------------------------
Glenn P. Sblendorio
Chief Financial Officer
-15-
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<CIK> 0000782145
<NAME> ARISTO INTERNATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 544,104
<SECURITIES> 0
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<CURRENT-ASSETS> 1,243,703
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