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 January 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
--- ---
As of February 16, 1996, there were 13,500,612 shares of the
Registrant's common stock outstanding.
<PAGE>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
Index
Page
PART I - FINANCIAL STATEMENTS
Item 1 Consolidated Balance Sheets as of January 31,
1996 and October 31, 1995.......................................3
Consolidated Statement of Operations for the three month
period ended January 31, 1996 and 1995 and for the
cumulative period from June 4, 1990 (inception) to
January 31, 1996 ...............................................4
Consolidated Statement of Cash Flows for the three month
period ended January 31, 1996 and 1995 and for the
cumulative period from June 4, 1990 (inception) to
January 31, 1996 ...............................................5
Notes to Consolidated Financial Statements......................7
Item 2 Management's Discussion and Analysis of Financial
Conditions and Results of Operations............................8
PART II - OTHER INFORMATION
Item 1 Legal Proceedings..............................................10
Item 6 Exhibits and Reports on Form 8-K...............................10
SIGNATURES..................................................................11
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<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
Consolidated Balance Sheets
As of January 31, 1996 and October 31, 1995
<TABLE>
<CAPTION>
ASSETS January 31, October 31,
1996 1995
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 666,781 $ 540,297
Restricted cash 446,168 442,430
Marketable securities 1,500
Prepaid expenses and other current assets 247,470 236,319
------------- -----------
Total current assets 1,360,419 1,220,546
Fixed assets - at cost, net 327,178 252,456
Patents, net 75,602 77,034
Capitalized software, net 7,619,124 7,907,937
Goodwill, net 1,121,045 1,164,161
Other assets 418,669 426,195
------------- -----------
Total assets $ 10,922,037 $ 11,048,329
============= ===========
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable - bank $ 406,000 $ 406,000
Convertible term loans-stockholders 375,000
Payable to stockholder 425,000 500,000
Capital leases - current 29,428 25,313
Accounts payable and accrued expenses 694,107 661,045
------------ -----------
Total current liabilities 1,554,535 1,967,358
------------ -----------
Capital leases - long term 63,686 59,209
Deferred rent 155,437 158,891
Convertible term loans-stockholders 760,000 565,000
------------ -----------
Total liabilities 2,533,658 2,750,458
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; authorized
1,000,000 shares; issued and outstanding
73,350 and 33,350, respectively 73 33
Common stock, $.001 par value; authorized 19,000,000
shares; issued and outstanding 13,490,612 and
13,199,945, respectively 13,491 13,200
Additional paid-in capital 23,525,856 21,871,438
Deferred compensation expense (1,728,572) (1,846,429)
Deficit accumulated during the development stage (13,422,469) (11,740,371)
----------- -----------
Total stockholders' equity 8,388,379 8,297,871
----------- -----------
Total liabilities and stockholders' equity $ 10,922,037 $ 11,048,329
=========== ===========
</TABLE>
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<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
For the three month period ended January 31, 1996 and 1995
and for the cumulative period from June 4, 1990 (inception)
to January 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, Cummulative
---------------------------------- Since
1996 1995 June 4, 1990*
------------- ------------- --------------
<S> <C> <C> <C>
Royalty revenue $ 1,547 $ 1,779 $ 118,546
Production revenue 90,000 - 238,300
----------- ----------- -----------
Total revenue 91,547 1,779 356,846
Selling, general and administrative expenses (1,076,614) (629,223) (10,534,045)
Research and development expenses (660,843) (21) (2,283,696)
Interest expense (40,890) (13,713) (275,035)
Interest and other income (expenses) 8,553 101,374 117,302
----------- ----------- -----------
Net loss (1,678,247) (539,804) (12,618,628)
Dividends on preferred stock (3,851) - (8,436)
----------- ----------- -----------
Net loss applicable to common stockholders $(1,682,098) $ (539,804) $(12,627,064)
----------- ----------- -----------
Weighted average number of common shares 13,345,279 8,941,184
=========== ===========
outstanding
Net loss per share $ (0.13) $ (0.06)
=========== ===========
</TABLE>
* Excludes losses from Astro-Stream.
-4-
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
For the three month period ended January 31, 1996 and 1995 and for the
cumulative period from June 4, 1990 (inception) to January 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, Cumulative
----------------------------- Since
1996 1995 June 4, 1990
----------- ----------- -----------
<S> <C> <C> <C>
Net loss during development stage (1,678,247) (539,804) (12,618,628)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 469,054 4,647 1,009,656
Expenses paid by issuance of common stock 2,750 1,228,623
Deferred rent (3,454) (3,454) 155,437
Loss on disposal of fixed asset 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 (11,151) (105,171) (191,437)
(Increase) decrease in accounts payable and accrued expenses 27,631 (41,424) 544,585
----------- ----------- -----------
Net cash used in operating activities (1,193,379) (685,206) (9,808,394)
----------- ----------- -----------
Cash flows from investing activities:
Investment in Borta net of cash acquired (238,615)
Expenditures for equipment, leasehold improvements, (92,883) (12,346) (439,130)
patents and organization costs (1,517,601)
Purchases of marketable securities
Sales of marketable securities 1,462 8,250 1,473,431
Purchase of computer software (110,000)
Decrease (increase) in other assets 7,524 (139,241) (163,115)
Increase in restricted cash (3,738) (446,168)
----------- ----------- -----------
Net cash used in investing activities (87,635) (143,337) (1,441,198)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from notes payable - bank 251 359,857
Proceeds from notes payable - stockholders 793,500
Repayments of notes payable - stockholders (75,000) (418,500)
Capital leases 14,349 98,871
Convertible term loans converted to equity
Proceeds acquired in connection with Astro-Stream merger 59,494
Proceeds from issuance of preferred stock 220,000 320,050
Proceeds from issuance of common stock 1,232,000 360,000 8,786,537
Proceeds from issuance of convertible term loans 20,000 500,000 1,985,000
Purchase of treasury stock (60,000)
Dividends on preferred stock (3,851) (8,436)
----------- ----------- -----------
Net cash provided by financing activities 1,407,498 860,251 11,916,373
----------- ----------- -----------
Net increase in cash and cash equivalents 126,484 31,708 666,781
Cash and cash equivalents, beginning of period 540,297 502,993
----------- ----------- -----------
Cash and cash equivalents, end of period $ 666,781 $ 534,701 $ 666,781
=========== =========== ===========
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<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows, continued
January 31, Cumulative
----------------------------- Since
1996 1995 June 4, 1990
----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 36,091 $ 13,713 $ 207,840
=========== =========== ===========
Income taxes $ 4,069 $ 2,734 $ 23,695
=========== =========== ===========
</TABLE>
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
common 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.
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 January 1996, the Company issued 500 shares of common stock in exchange
for consulting services valued at $2,750.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-QSB and Regulation S-B
related to interim period financial statements, and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles. However, in the opinion of management, all adjustments (consisting
of normal recurring adjustments and accruals) considered necessary for a fair
presentation of the financial position of the Company at January 31, 1996 and
1995, have been included. The results of operations for the interim period are
not necessarily indicative of the results that may be expected for the entire
year. Reference should be made to the annual financial statements, including
footnotes thereto, included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended October 31, 1995.
Note 2 - SUBSEQUENT EVENTS
On February 12, 1996 Aristo executed a $500,000 promissory note bearing interest
at twelve percent per annum, payable on May 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 onto video CD's. 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.
Subsequent to January 31, 1996, the Company entered into a subscription
agreement to issue and sell 10,000 shares of common stock in exchange for
$55,000 in cash. As of February 16, 1996 all subscribed amounts have been
received.
On March 6, 1996 the holder of the $500,000 promissory note, issued on December
29, 1995, indicated its intent to convert the note into 90,909 shares of the
Company's stock.
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<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PLAN OF OPERATION
During the next twelve months, the Company expects to continue the development
of software for use in interactive multi-player network gaming and video
conference communication on the World Wide Web and hardware as well as software
for the utilization of Motion Picture Expert Group (MPEG) encoding for full
screen video on Multimedia PC's. The Company has placed substantial emphasis on
developing relationships with software publishers and major players in the film,
cable and telecommunications industries which have existing distribution
systems.
During fiscal 1995, the Company began development of eleven products for four
separate publishers and signed a letter of intent with PSINet for the
development of multi-player, networked/on-line game software. This development
effort will continue through fiscal 1996, with initial product introductions
planned for the second to fourth quarters of 1996. The Company had entered into
negotiations or signed agreements for additional development, licensing or
conversion projects during the first quarter of 1996.
The Company's employee base grew from 8 full-time employees in fiscal 1994 to 36
full-time employees during fiscal 1995. The majority of this growth,
approximately 25 employees, was added through the acquisition of Borta in July
1995. It is anticipated that this growth will continue in fiscal 1996 to more
than 50 full-time employees. This expansion will occur primarily in the areas of
game development, engineering and graphics, which will increase the production
capabilities for original concept games.
GENERAL
The Company's revenues are comprised of software development fees, royalties on
software products and royalties received on consumer product licenses. Cost of
revenue, which includes the salaries of the software programmers and engineers,
as well as depreciation of the fixed assets used in the development of the
software, are included in research and development.
Revenue from software development contracts is recognized when prescribed
milestones, as defined in the specific contracts, are reached. Royalties on
software and the Company's consumer products are recognized as earned.
The Company's financial statements do not contain a provision for income tax
expense from its inception through January 31, 1996 as the Company has incurred
operating losses since inception. The Company has paid minimum state and local
taxes during the years, as required. As of October 31, 1995, Aristo had
available unused net operating loss carry forwards of approximately $9.8
million. These tax benefits, which may provide future tax benefits, expire in
the period from 2006 to 2010 and may be subject to limitation under 382 of the
Internal Revenue Code. The Company has fully reserved these potential future tax
benefits.
Comparison of Quarter Ended January 31, 1996 vs. January 31, 1995
- -----------------------------------------------------------------
Consolidated revenues for the first quarter of 1996 increased $89,768 to $91,547
from the same period in 1995. The increase was due to the acquisition of Borta
which generated revenues of $90,000 in the first quarter of 1996.
Selling, general and administrative expenses for the quarter ended January 31,
1996 increased to $1,076,614 from $629,223 for the same period in 1995, an
increase of $447,391. Expenses of $155,922, or 35%, of the increase are
attributable to Borta, which was acquired on July 31, 1995. Deferred
compensation expense of $117,857, or 26%, of the increase was recorded during
the current quarter. No such expense is included in the quarter ended January
31, 1995.
Salaries and benefits increased $144,158, or 32%, due to the hiring of
additional personnel. Travel and entertainment expense increased $61,816 as a
result of travel related to visits to potential new acquisition candidates and
to Borta. These increases were offset in part by a decrease of $111,748 in
professional fees substantially due to a reduction in accounting fees as a
result of special projects being performed in 1995 which did not occur in 1996.
-8-
<PAGE>
Research and development expenses increased to $660,843 for the quarter ended
January 31, 1996 from $21 for the quarter ended January 31, 1995. The increase
is attributable to the development work done by Borta during the quarter. Borta
was not a subsidiary of Aristo during the first quarter of 1995.
Gain on Settlement of Lawsuit
- -----------------------------
A gain on the settlement of a lawsuit in the amount of $76,466 represents the
judgement by the Supreme Court of the State of New York, County of New York on
January 30, 1995 in favor of the Company and further provides that the Company
be paid interest from February 6, 1992. This amount has been included in
interest and other income (expense) in the January 31, 1995 Consolidated
Statement of Operations.
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 $11,734,000 and with
the exchange of stock for approximately $934,000 in products and services. The
Company intend to use its best efforts to finance or obtain financing sufficient
for the Company's requirements.
Aristo has a revolving credit facility with a bank in the amount of $500,000.
The facility expires on May 15, 1996. As of January 31, 1996, $406,000 had been
drawn upon, of which $250,000 is collateralized by a certificate of deposit.
Consequently, if for any reason the credit facility is not renewed, the amount
to be repaid by Aristo would be limited to the uncollateralized portion of the
facility, which as of January 31, 1996 was $156,000. Aristo anticipates renewing
this facility and has no reason to believe that the facility will not be renewed
upon request. In the event that the credit facility is not renewed, Aristo
presently anticipates that the facility would be repaid by the liquidation of
the $250,000 collateral and from working capital.
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 December 29, 1994, the Company issued a promissory note, to a stockholder for
$500,000 in cash, and on December 29, 1995 the Company issued a new note which
replaces and supersedes the note dated December 29, 1994. Under the terms of the
new note, the note is payable in eight monthly installments, beginning on May 1,
1996. The note bears interest at a rate equal to 10% per annum, payable on the
last day of each month. The stockholder shall have the option, until May 1,
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 intent to convert the note into
90,909 shares of the Company's common stock.
On March 29, 1995, the Company issued a promissory note to a stockholder for
$200,000 in cash, collateralized by certain of the Company's patents, bearing
interest at 10% payable quarterly. On December 29, 1995, the stockholder
exercised its right to convert the note into 66,667 common shares of the
Company.
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.
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<PAGE>
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
TOM FRIED VS. BORTA, INC., BORTA ASSOCIATES, RON BORTA AND LESLIE DAVIS.
This action was commenced by a former employee of Borta, Inc. alleging a
claim for royalties from work performed while an employee and for
additional wages. This action was filed on May 12, 1995 in the Circuit
Court of Fairfax County, Virginia. This action, reported in the Company's
10-KSB for the year ended October 31, 1995, has been dismissed, with
prejudice, by Tom Fried.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) None.
-10-
<PAGE>
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: March 12, 1996
ARISTO INTERNATIONAL CORPORATION
(formerly known as The Astro-Stream
Corporation)
By: /s/ Mouli Cohen
-----------------------------
Mouli Cohen
President
By: /s/ Edward J. Hughes
-----------------------------
Edward J. Hughes
Chief Financial Officer
-11-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000782145
<NAME> ARISTO INTERNATIONAL CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<EXCHANGE-RATE> 1
<CASH> 666,781
<SECURITIES> 0
<RECEIVABLES> 112,300
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,360,419
<PP&E> 408,851
<DEPRECIATION> (81,673)
<TOTAL-ASSETS> 10,922,037
<CURRENT-LIABILITIES> 1,554,535
<BONDS> 0
0
73
<COMMON> 13,491
<OTHER-SE> 8,374,815
<TOTAL-LIABILITY-AND-EQUITY> 10,922,037
<SALES> 90,000
<TOTAL-REVENUES> 91,547
<CGS> 0
<TOTAL-COSTS> 1,076,614
<OTHER-EXPENSES> 660,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,890
<INCOME-PRETAX> (1,678,247)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,678,247)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,678,247)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
