THIS DOCUMENT IS A CONFIRMING COPY OF THE FORM 10-QSB PREVIOUSLY FILED ON PAPER
WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1995
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, 1995
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Commission File Number 0-25296
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ARISTO INTERNATIONAL CORPORATION
(f/k/a THE ASTRO-STREAM CORPORATION)
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(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
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(Registrant's telephone number, including area code)
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(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 August 15, 1995, there were 12,970,812 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 July 31,
1995 and 1994 and October 31, 1994..................................3
Consolidated Statement of Operations for the three months
ended July 31, 1995 and 1994 and for the nine months ended
July 31, 1995 and 1994..............................................4
Consolidated Statement of Stockholders' Equity for the
years ended October 31, 1992, 1993 and 1994 and for the
cumulative period from June 4, 1990
(inception) to July 31, 1995........................................5
Consolidated Statement of Cash Flows for the
nine months ended July 31, 1995 and 1994............................6
Notes to Consolidated Financial Statements..........................8
Item 2 Management's Discussion and Analysis of Financial
Conditions and Results of Operations...............................10
PART II - OTHER INFORMATION
-----------------
Item 6 Exhibits and Reports on Form 8-K...................................12
SIGNATURES..................................................................13
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<PAGE>
<TABLE>
<CAPTION>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Balance Sheet
July 31, 1995 and 1994 and October 31, 1994
ASSETS: July 31,
----------------------- October 31,
1995 1994 1994
------ ------ ------
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $183,146 $203,784 $502,993
Restricted cash 436,831 336,831 336,831
Marketable securities 25,819 171,514 66,000
Prepaid expenses and other current assets 191,208 3,395 20,713
----------- ------------- -------------
Total current assets 837,004 715,524 926,537
Fixed assets - at cost, net 134,167 60,252 76,088
Parents, net 78,466 84,195 82,762
Organization costs, net - 3,711 2,970
Capitalized software 8,086,750 - -
Excess of cost of net assets acquired 1,156,250 - -
Other assets 526,715 25,785 251,241
----------- ------------- -------------
Total assets $10,819,352 $889,467 $1,339,598
=========== ============= =============
LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Notes payable - bank $452,000 $406,000 $406,000
Notes payable - stockholders - 200,000 -
Accounts payable and accrued expenses 499,160 296,633 272,463
Payable due to stockholder 500,000 - -
----------- ------------- -------------
Total current liabilities 1,451,160 902,633 678,463
Notes payable 700,000 - -
Convertible term loans - - 1,025,000
Deferred rent 162,344 176,161 172,705
----------- ------------- -------------
Total liabilities 2,313,504 1,078,794 1,876,168
Stockholder's equity (deficit):
Preferred stock, $.001 par value; authorized
1,000,000 shares; 33,333 shares issued and
outstanding in 1995 33 - -
Common stock, $.001 par value; authorized
19,000,000 shares, 12,904,146 and 9,292,364,
issued and outstanding in 1995 and 1994,
respectively 12,904 9,292 7,956
Additional paid in-capital 20,286,612 6,138,062 6,279,398
Less:
Deferred compensation expense (1,964,286) - -
Treasury stock, at cost, 1,667,390 shares - (60,000) -
Deficit accumulated during the development stage (9,829,415) (6,276,681) (6,823,924)
----------- ------------- ------------
Total stockholders' equity (deficit) 8,505,848 (189,327) (536,570)
----------- ------------- ------------
Total liabilities and stockholders' equity (deficit) $10,819,352 $889,467 $1,339,598
=========== ============= ============
</TABLE>
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<PAGE>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
For the three and nine months ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
---------- ---------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Royalty revenue $2,989 $4,199 $4,749 $12,532
Selling, general and administrative expenses (1,082,147) (893,379) (2,246,117) (1,607,355)
Research and development expenses (300) (1,655) (321) (43,645)
Interest expense (49,718) (19,927) (59,029) (61,356)
Interest Income 7,613 8,499 14,166 18,423
Income from settlement of litigation 76,466 -- 76,466 --
------------- ---------- ------------ ------------
Net Loss ($1,045,097) ($902,263) ($2,210,086) ($1,681,401)
============= ========== ============ ============
Weighted average number of common 10,728,821 7,955,951 9,714,981 7,484,385
shares outstanding ============= ========== ============ ============
Net loss per share ($0.10) ($0.11) ($0.23) ($0.22)
============= ========== ============ ============
</TABLE>
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<PAGE>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statement of Stockholders' Equity
For the fiscal years ended October 31, 1992, 1993, 1994 and for the cumulative
period from June 4, 1990 (inception) to July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Development Deferred
Price per Preferred Stock Common Stock Paid In Stage Compensation
Share Shares Amount Shares Amount Capital Deficit Expense Total
----- ------ ------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1994 0 0 7,955,951 7,956 6,279,398 (6,823,924) 0 (536,570)
Conversion of notes payable
into common stock in December 1.23 834,529 835 1,024,165 1,025,000
Sale of common stock during
November for cash 1.53 235,936 236 359,764 360,000
Sale of common stock during
March for cash 2.22 450,195 450 999,550 1,000,000
Exchange of common stock
during March for graphic
illustration 2.22 115,050 115 255,440 255,555
Issuance of stock in May for
shares protected against
anti-dilution -- 38,350 38 (38) 0
Sale of preferred stock in
May for cash 3.00 33,333 33 -- -- 100,017 100,050
Equity acquired from the
reverse acquisition with
Astro-Stream -- 1,098,810 1,099 806,205 (795,405) 11,899
Issuance of common stock as
a result of the acquisition of
Borta, Inc. 4.67 1,818,182 1,818 8,498,182 8,500,000
Grant of restricted common stock 5.50 357,143 357 1,963,929 (1,964,286) 0
Net income (loss) for the period
ended July 31, 1995 -- -- (2,210,086) (2,210,086)
--------------------------------------------------------------------------------------
Balance, July 31, 1995 33,333 33 12,904,146 12,904 20,286,612 (9,829,415)(1,964,286) 8,505,848
======================================================================================
</TABLE>
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<PAGE>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statement of Cash Flows
For the nine month period ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Cash flows from operating activities: ($2,210,086) ($1,681,401)
Net loss during development stage
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 16,911 15,628
Expenses paid by issuance of common stock 70,000
Deferred royalty income (8,333)
Deferred rent (10,361) 33,056
Net realized (gain) loss on sale of marketable securities 6,208 31,317
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other current assets (145,495) 910
Increase (decrease) in accounts payable and accrued expenses 85,224 (97,921)
-------------- ---------------
Net cash used in operating activities (2,257,599) (1,636,744)
-------------- ---------------
Cash flows from investing activities:
Investment in Borta, Inc., net of cash acquired (222,000) --
Expenditures for equipment, leasehold improvements, patents and
organization costs (22,724) (21,762)
Purchase of marketable securities (892,733) (588,977)
Sales of marketable securities 926,706 386,146
Increase in other assets (19,919) (6,663)
Increase in restricted cash (100,000) --
-------------- ---------------
Net cash used in investing activities (330,670) (231,256)
-------------- ---------------
Cash flows from financing activities:
Net proceeds (repayments) from notes payable - bank -- (39,500)
Proceeds from notes payable - stockholders 700,000 --
Repayments of notes payable - stockholders -- (160,000)
Increase in book overdraft 48,878 --
Proceeds from issuance of common stock 1,460,050 1,580,000
Proceeds acquired in connection with the recapitalization
of the Company from the Astro-Stream merger 59,494 --
-------------- ---------------
Net cash used in financing activities 2,268,422 1,380,500
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (319,847) (487,500)
Cash and cash equivalents, beginning of period 502,993 691,284
-------------- ---------------
Cash and cash equivalents, end of period $183,146 $203,784
============== ===============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $59,029 $57,056
============== ===============
Income taxes $4,657 $6,031
============== ===============
</TABLE>
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<PAGE>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows, continued
For the nine month period ended July 31, 1995 and 1994
Unaudited
Supplemental schedule of noncash investing and financing activities:
During 1995, notes payable of $1,250,000 was 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. The
preliminary details of the business acquired are as follows:
Fair value of current assets acquired $ 78,000
Fair value of fixed assets acquired 45,000
Capitalized assets acquired 8,086,750
Excess of cost over net assets acquired 1,156,250
Liabilities assumed (66,000)
Intercompany payable to the Company (50,000)
---------------
Total purchase price consideration 9,250,000
Common stock issued 8,500,000
---------------
Total cash payment to seller 750,000
Liabilities to former shareholder 500,000
---------------
Cash paid to sellers at closing of the acquisition 250,000
Less, cash acquired 28,000
---------------
Net cash payment at closing of the acquisition $222,000
===============
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<PAGE>
ARISTO INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 July 31, 1995 and 1994,
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 June 30, 1994.
Note 2 - ACQUISITIONS
On May 3, 1995, the Company acquired all of the outstanding common stock of
Aristo International Corporation, a New York corporation ("Aristo NY"), through
the issuance of 9,889,290 shares of the Company's common stock, which
constituted 90% of the Company's issued and outstanding common stock immediately
following this acquisition. The acquisition was accomplished by merging Aristo
NY with and into the Company (the "Merger"). Before the Merger, the Company was
inactive and was engaged in seeking out a suitable business for acquisition or
merger. After the Merger, the Company changed its name to Aristo International
Corporation.
For accounting purposes, the Aristo NY acquisition was treated as a
recapitalization of the Company with the Company as the acquirer. All common
stock of the Company was retroactively restated to reflect the equivalent number
of shares of the Company that were deemed to be issued by the Company in the
transaction.
On July 31, 1995, the Company, through its wholly-owned subsidiary BAIC
Acquisition Corp., purchased all of the outstanding capital stock of Borta,
Inc., a Virginia corporation ("Borta"), for consideration aggregating $9,250,000
(the "Borta Acquisition"). The consideration consisted of $8,500,000 (1,818,181
shares) of newly issued Company common stock and $750,000 in cash. Of the
$750,000 in cash payments, $250,000 was paid at the closing and the remaining
$500,000 will be paid in equal installments on November 1, 1995 and February 28,
1996. Borta is involved
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<PAGE>
in the creation and development of new multimedia digital entertainment and is
engaged in original game development, cross-platform conversions, software tools
and techniques and enabling technologies for game platforms.
The Borta Acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of operations will be included in these financial
statements from the effective date of the Borta Acquisition. The Borta
Acquisition cost has been allocated to the assets acquired and liabilities
assumed based on a preliminary estimate of the estimated fair values at the date
of the Borta Acquisition, including $38,000 to net current liabilities, $45,000
to fixed assets, $8,086,750 to existing technology and $1,156,250 to excess of
cost over net assets acquired. The values assigned to the various identifiable
intangible assets will be determined based on anticipated discounted after-tax
cash flows for the period estimated to encompass the remaining life of the
technology existing at the date of the Borta Acquisition.
Note 3 - SUBSEQUENT EVENTS
On August 1, 1995, the Company issued a note to a shareholder in exchange for
$240,000 in cash. This note calls for a lump-sum interest payment of $20,000 on
the maturity date, which is December 31, 1995.
On August 1, 1995, the Company entered into subscription agreements for $300,000
and agreed to issue approximately 66,666 shares of common stock therefor.
-9-
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF NINE MONTH PERIOD ENDED JULY 31, 1995 VS. JULY 31, 1994.
Selling, general and administrative expenses for the period ended July 31, 1995
increased to $2,246,117 from $1,607,355 from the period ended July 31, 1994.
Approximately 70% of the increase was due to an increase in professional and
consulting fees. Accounting expenses increased $143,000, primarily due to
services relating to the Merger, including an audit of the three fiscal years
through fiscal 1994. Consulting expenses increased $90,000 primarily due to
costs associated with designing and developing a strategic plan for the
interactive multimedia market. Legal fees increased $179,000 primarily due to
services relating to the Merger as well as increased legal services relating to
transactions in the interactive multimedia marketplace. Other increases included
$126,000 for salaries and wages related to additional executive personnel.
Royalty revenue decreased to $4,749 in the nine-month period ended July 31, 1995
from $12,532 in the nine-month period ended July 31, 1994 as a result of fully
amortizing the remaining advance royalty payment of income and a general decline
in the sale of Aristo's consumer product Hidden Eyes(TM). Interest income
decreased to $14,166 in the same period in 1995 from $18,423 in 1994 due to
decreased holdings of interest-bearing marketable securities.
Research and development expenses decreased to $321 in the nine-month period
ended July 31, 1995 from $43,645 for the nine-month period ended July 31, 1994.
The decrease is attributable to the completion of existing research and
development projects related to low-tech consumer products and no initiation of
additional development projects. Aristo expects to incur only nominal amounts of
research and development costs in the upcoming twelve months with respect to its
consumer products.
COMPARISON OF THREE MONTH PERIOD ENDED JULY 31, 1995 VS. JULY 31, 1994.
Selling, general and administrative expenses for the period ended July 31, 1995
increased to $1,082,147 from $893,379 from the three month period ended July 31,
1994.
Approximately 76% of the increase was due to costs incurred in the development
of on-line services including programming, computer time, producers and
consultants. Travel and travel related expenses also accounted for an increase
of $17,228 related to multi-media acquisitions.
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<PAGE>
GAIN ON SETTLEMENT OF LAWSUIT
The gain on the settlement of 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.
TAXES
As of July 31, 1995, Aristo had available unused net operating loss
carry-forwards of approximately $7.1 million. These tax benefits, which may
provide future tax benefits, expire in the period from 2006 to 2009 and may be
subject to limitation under Section 382 of the Internal Revenue Code.
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 $8,707,000 and with
the exchange of stock for $1,345,000 in products and services. The principal
stockholders intend to use their 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 term of the facility expires on May 15, 1996. As of July 31, 1995, $406,000
had been drawn upon, of which $250,000 of such credit facility is collateralized
by a certificate of deposit. Consequently, if for any reason the credit facility
if not renewed, the amount to be repaid by Aristo would be limited to the
uncollateralized portion of the facility, which as of July 31, 1995 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.
Note payable - Stockholder
The note payable to stockholder of $200,000 at July 31, 1994 was converted into
197,586 shares of common stock on April 20, 1995. At July 31, 1995, the $700,000
balance represents a $500,000 note dated December 29, 1994 and requires interest
only payments of 10% per annum through December 1995 and monthly principal and
interest payments of $41,666 beginning January 1996 through December 1996. On
March 29, 1995, a $200,000 note was issued to a stockholder and is due on April
30, 1996. The note bears interest at 10% per annum payable quarterly and may be
converted, at the holders option, into 66,667 shares of common stock prior to
December 31, 1995. Subsequent to December 31, 1995, the note may be converted,
at the holders option, into such number of shares of common stock obtained by
dividing the $200,000 by the market value of the stock discounted by 15%.
During August 1995, the noteholders entered into an agreement to convert these
notes into shares of common stock at prices to be determined at a later date.
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<PAGE>
PART II - OTHER INFORMATION
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
On May 5, 1995, the Company filed a Current
Report on Form 8-K with respect to the merger on
May 3, 1995 of Aristo International Corporation,
a New York corporation, with and into the
Company.
On August 15, 1995, the Company filed a Current
Report on Form 8-K with respect to the merger on
July 31, 1991 of Borta, Inc., a Virginia
corporation, with and into BAIC Acquisition
Corp., a wholly-owned subsidiary of the Company.
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<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: August 23, 1995
ARISTO INTERNATIONAL CORPORATION
(formerly known as The Astro-Stream Corporation)
By: /s/ Shmuel Cohen
----------------------------
Shmuel Cohen
President
By: /s/ Tony Burger
----------------------------
Tony Burger
Chief Financial Officer
- -
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 183,146
<SECURITIES> 25,819
<RECEIVABLES> 100,910
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 837,004
<PP&E> 125,879
<DEPRECIATION> (36,711)
<TOTAL-ASSETS> 10,819,352
<CURRENT-LIABILITIES> 1,451,160
<BONDS> 0
0
33
<COMMON> 12,904
<OTHER-SE> 8,492,944
<TOTAL-LIABILITY-AND-EQUITY> 10,819,352
<SALES> 0
<TOTAL-REVENUES> 2,989
<CGS> 0
<TOTAL-COSTS> 1,014,774
<OTHER-EXPENSES> 300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,785
<INCOME-PRETAX> 1,032,704
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,032,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,032,704
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0
</TABLE>
