<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31,1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _____________
Commission file number 0-14669
The Aristotle Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
27 Elm Street, New Haven, Connecticut
(Address of principal executive offices)
06-1165854
(I.R.S. Employer
Identification No.)
06510
(Zip Code)
Registrant's telephone number, including area code:
(203) 867-4090
___________________________
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 May 5, 1999, 1,233,118 shares of Common Stock, $.01 par value per
share, were outstanding.
<PAGE>
THE ARISTOTLE CORPORATION
INDEX OF INFORMATION CONTAINED IN FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1--Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 1999 and June 30, 1998............. 3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
March 31, 1999 and 1998.............................................................. 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1999 and 1998.............................................................. 5
Notes to Condensed Consolidated Financial Statements.................................. 6
Item 2--Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ 10
Item 3--Quantitative and Qualitative Disclosure About Market Risk............................. 14
Part II Other Information
Item 1--Legal Proceedings..................................................................... 14
Item 2--Changes in Securities................................................................. 14
Item 3--Defaults Upon Senior Securities....................................................... 14
Item 4--Submission of Matters to a Vote of Security Holders................................... 14
Item 5--Other Information..................................................................... 14
Item 6--Exhibits and Reports on Form 8-K...................................................... 14
Signatures.................................................................................... 15
Exhibit Index................................................................................. 16
</TABLE>
2
<PAGE>
THE ARISTOTLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
ASSETS ---------- ----------
------ (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................ $ 8,152 $ 12,271
Marketable securities.................................................................... 811 202
Marketable securities and cash equivalents held in escrow, at market value............... 710 600
Other current assets..................................................................... 160 568
--------- ---------
Total current assets................................................................... 9,833 13,641
--------- ---------
Property and equipment, net.................................................................. 11 4
--------- ---------
Other assets:
Marketable securities, at market value................................................... 2,098 867
Other noncurrent assets.................................................................. 52 70
--------- ---------
2,150 937
--------- ---------
$ 11,994 $ 14,582
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Current maturities of Series F, G and H Preferred Stock.................................. $ 799 $ 805
Accrued expenses......................................................................... 189 648
Accrued transaction costs................................................................ - 1,704
Accrued tax reserves..................................................................... 720 720
--------- ---------
Total current liabilities.............................................................. 1,708 3,877
--------- ---------
Commitments and contingencies
Series E Redeemable Preferred Stock.......................................................... 2,250 2,250
--------- ---------
Stockholders' equity:
Common stock, $.01 par value, 3,000,000 shares authorized, 1,240,618 and
1,209,027 shares issued in March 1999 and June 1998.................................... 13 11
Additional paid-in capital............................................................... 160,403 160,248
Retained earnings (deficit).............................................................. (152,241) (151,770)
Treasury stock, at cost, 7,500 and 7,287shares at March 1999 and June 1998............... (47) (30)
Net unrealized investment losses......................................................... (92) (4)
--------- ---------
Total stockholders' equity............................................................. 8,036 8,455
--------- ---------
$ 11,994 $ 14,582
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
THE ARISTOTLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative........................... $ 252 $ 181 $ 655 $ 470
Nonrecurring tax claim contingency fee............... -- -- -- 480
------- ------- ------- -------
Operating loss..................................... (252) (181) (655) (950)
------- ------- ------- -------
Other income (expense):
Investment and interest income....................... 226 51 609 109
Interest expense..................................... -- (1) -- (5)
------- ------- ------- -------
Loss from continuing operations before income
taxes and minority interest........................ (26) (131) (46) (846)
Benefit from (provision for) income taxes.............. (49) -- (49) 1,199
------- ------- ------- -------
Income (loss) from continuing operations
before minority interest............................. (75) (131) (95) 353
Minority interest...................................... -- -- -- 72
------- ------- ------- -------
Income (loss) from continuing operations............. (75) (131) (95) 281
Discontinued Operations:
Income from operations of The Strouse, Adler
Company............................................ -- 100 -- 657
Gain (loss) on sale of The Strouse, Adler Company.... (150) -- (198) --
------- ------- ------- -------
Net income (loss).................................. (225) (31) (293) 938
Preferred dividends.................................... 54 62 178 62
------- ------- ------- -------
Net income (loss) applicable to common
shareholders...................................... $ (279) $ (93) $ (471) $ 876
======= ======= ======= =======
Basic earnings (loss) per common share:
Continuing operations................................ $ (.11) $ (.16) $ (.22) $ .19
Discontinued operations.............................. -- .08 -- .58
Gain (loss) on sale of discontinued operations....... (.12) -- (.16) --
------- ------- ------- -------
Net income (loss).................................. $ (.23) $ (.08) $ (.38) $ .77
======= ======= ======= =======
Diluted earnings (loss) per common share:
Continuing operations................................ $ (.11) $ (.16) $ (.22) $ .22
Discontinued operations.............................. -- .08 -- .45
Gain (loss) on sale of discontinued operations....... (.12) -- (.16) --
------- ------- ------- -------
Net income (loss).................................. $ (.23) $ (.08) $ (.38) $ .67
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................. $ (293) $ 938
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization............................................... 1 442
Issuance of common stock for services....................................... -- 136
Changes in assets and liabilities:
Accounts receivable........................................................ -- (29)
Inventories................................................................ -- (2,524)
Other assets............................................................... 426 (173)
Accounts payable........................................................... -- (655)
Accrued expenses........................................................... (459) 781
---------- --------
Net cash used in operating activities...................................... (325) (1,084)
---------- --------
Cash flows from investing activities:
Purchase of marketable securities.................................................. (1,950) --
Minority interest.................................................................. -- 20
Purchase of investment............................................................. -- (150)
Purchase of restricted investment.................................................. -- (721)
Restriction of cash................................................................ -- (1,079)
Sale of marketable securities...................................................... -- 900
Repurchase of preferred stock...................................................... (6) (803)
Unrealized investment gains/(losses)............................................... (88) --
Payment of transaction costs from disposal of discontinued operations.............. (1,704) --
Purchase of property and equipment................................................. (8) (587)
---------- --------
Net cash used in investing activities...................................... (3,756) (2,420)
---------- --------
Cash flows from financing activities:
Net borrowings under line of credit................................................ -- 2,561
Principal payments under note payable.............................................. -- (164)
Proceeds from exercise of stock options............................................ 157 --
Proceeds from issuance of preferred stock.......................................... -- 2,250
Issuance of common stock........................................................... -- 135
Purchase of treasury stock......................................................... (17) --
Dividends paid ................................................................... (178) (62)
---------- --------
Net cash provided by financing activities.................................. (38) 4,720
---------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... (4,119) 1,216
CASH AND CASH EQUIVALENTS, beginning of period....................................... 12,271 139
---------- --------
CASH AND CASH EQUIVALENTS, end of period............................................. $ 8,152 $ 1,355
========== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
THE ARISTOTLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations:
--------------------
The Aristotle Corporation (Company or Aristotle) is a holding company which
recently acquired an operating company. See "Recent Developments" below
regarding the acquisition of Simulaids, Inc., New York privately owned company.
Previously, Aristotle, through its wholly-owned subsidiary, Aristotle Sub, Inc.
(ASI), owned approximately 97% of The Strouse, Adler Company (Strouse).
Aristotle formed ASI in 1993 to acquire Strouse (Strouse Acquisition). On
January 2, 1998, ASI was merged into Aristotle (ASI Merger) and, accordingly,
Strouse became a wholly-owned subsidiary of Aristotle. On June 30, 1998,
Aristotle consummated the sale of substantially all of the assets and certain of
the liabilities of Strouse to Sara Lee Corporation (Strouse Sale). On July 2,
1998, Strouse changed its name to "S-A Subsidiary, Inc." Strouse formerly
designed, manufactured and marketed women's intimate apparel.
Unless the context indicates otherwise, all references herein to the
"Company" for the three months ended and nine months ended March 31, 1999
include only Aristotle, and all other references herein to the "Company" include
Aristotle, ASI and Strouse.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine months ended March 31, 1999 are not necessarily indicative of
results that may be expected for the year ending June 30, 1999. For further
information, refer to the consolidated financial statements and notes included
in the Aristotle's Annual Report on Form 10-K for the year ended June 30, 1998.
6
<PAGE>
2. Earnings per Common Share
-------------------------
Aristotle has adopted the provisions of SFAS 128, "Earnings Per Share".
The prior information ended March 31, 1998 has been restated as a result of the
adoption. For the three months and nine months ended March 31, 1999 and 1998,
Basic and Diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
- ----------------------------
(in thousands of dollars, except share and per share data)
1999 1998
-------------- --------------
<S> <C> <C>
Basic Earnings per share:
Numerator
Income (loss) from continuing operations............................................ $ (75) $ (131)
Preferred dividends................................................................. (54) (62)
------------ ----------
Income (loss) from continuing operations
applicable to common shareholders................................................. (129) (193)
Income (loss) from discontinued operations.......................................... (150) 100
------------ ----------
Net income (loss) applicable to common shareholders............................... $ (279) $ (93)
============ ==========
Denominator
Weighted average shares outstanding............................................... 1,233,118 1,200,421
============ ==========
Basic Earnings Per Share Per Common Shareholder
Continuing operations................................................................. $ (0.11) $ (0.16)
Discontinued operations............................................................... -- --
Gain (loss) on sale of discontinued operations........................................ (0.12) 0.08
------------ ----------
Net income (loss) per share....................................................... $ (0.23) $ (0.08)
============ ==========
Diluted Earnings per Share:
Numerator
Income (loss) from continuing operations.............................................. $ (75) $ (131)
Preferred dividends................................................................... (54) (62)
------------ ----------
Income (loss) from continuing operations
applicable to common shareholders................................................... (129) (193)
Income (loss) from discontinued operations............................................ (150) 100
------------ ----------
Net income (loss) applicable to common shareholders............................... $ (279) $ (93)
============ ==========
Denominator
Weighted average shares outstanding................................................... 1,233,118 1,200,421
============ ==========
Diluted Earnings Per Share Per Common Shareholder
Continuing operations................................................................. $ (0.11) $ (0.16)
Discontinued operations............................................................... -- 0.08
Gain (loss) on sale of discontinued operations........................................ (0.12) --
------------ ----------
Net income (loss) per share....................................................... $ (0.23) $ (0.08)
============ ==========
</TABLE>
For the three months ended March 31, 1999 and March 31, 1998, convertible
preferred stock and options to purchase shares of common stock were not included
in diluted earnings per share as such inclusion would be antidilutive as a
result of Aristotle's loss from continuing operations applicable to holders of
common stock.
7
<PAGE>
Nine Months Ended March 31
- -------------------------------------------------------------
(in thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
1999 1998
--------------- -------------
<S> <C> <C>
Basic Earnings per share:
Numerator
Income (loss) from continuing operations............................................... $ (95) $ 281
Preferred dividends.................................................................... (178) (62)
---------- -----------
Income (loss) from continuing operations
applicable to common shareholders..................................................... (273) 219
Income (loss) from discontinued operations............................................. -- 657
Gain (loss) on sale of discontinued operations......................................... (198) --
---------- -----------
Net income (loss) applicable to common shareholders........................... $ (471) $ 876
========== ===========
Denominator
Weighted average shares outstanding.................................................... 1,223,700 1,134,772
========== ===========
Basic Earnings Per Share Per Common Shareholder
Continuing operations.................................................................. $ (0.22) $ 0.19
Discontinued operations................................................................ -- 0.58
Gain (loss) on sale of discontinued operations......................................... (0.16) --
---------- -----------
Net income (loss) per share................................................... $ (0.38) $ 0.77
========== ===========
Diluted Earnings per Share:
Numerator
Income (loss) from continuing operations............................................... $ (95) $ 281
Preferred dividends.................................................................... (178) --
Minority interest preferred dividends.................................................. -- 51
---------- -----------
Income (loss) from continuing operations
applicable to common shareholders..................................................... (273) 332
Income (loss) from discontinued operations............................................. -- 657
Gain (loss) on sale of discontinued operations......................................... (198) --
---------- -----------
Net income (loss) applicable to common shareholders........................... $ (471) $ 989
========== ===========
Denominator
Weighted average shares outstanding.................................................... 1,223,700 1,134,772
Weighted average convertible preferred stock........................................... -- 316,768
Minority interest convertible common stock............................................. -- 22,567
---------- -----------
1,223,700 1,474,407
========== ===========
Diluted Earnings Per Share Per Common Shareholder
Continuing operations.................................................................. $ (0.22) $ 0.22
Discontinued operations................................................................ -- 0.45
Gain (loss) on sale of discontinued operations......................................... (0.16) --
---------- -----------
Net income (loss) per share.................................................... $ (0.38) $ 0.67
========== ===========
</TABLE>
For the nine months ended March 31, 1999, convertible preferred stock and
options to purchase shares of common stock were not included in diluted earnings
per share as such inclusion would be antidilutive as a result of Aristotle's
loss from continuing operations applicable to holders of common stock.
8
<PAGE>
3. Comprehensive Income
--------------------
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which discloses changes in equity that result from
transactions and economic events from non-owner sources. Comprehensive income
(loss) (unaudited) for the three and nine months ended March 31, 1999 and 1998
is as follows:
Three Months Ended
March 31,
---------
(In thousands of Dollars)
1999 1998
---- ----
Net loss ................................ $(225) $(31)
Net unrealized investment loss ........... (92) (6)
------- -----
Comprehensive loss ....................... $(317) $(37)
====== =====
Nine Months Ended
March 31,
---------
(In thousands of Dollars)
1999 1998
---- ----
Net income..................................... $(293) $938
Net unrealized investment loss................. (88) (6)
----- ----
Comprehensive income (loss).................... $(381) $932
===== ====
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
This discussion and analysis of financial condition and results of
operations will review the results of operations of the Company, on a
consolidated basis, for the three and nine months ended March 31, 1999, as
compared to the three and nine months ended March 31, 1998. On June 30, 1998,
Aristotle consummated the sale of substantially all of the assets and certain of
the liabilities of The Strouse, Adler Company ("Strouse") to Sara Lee
Corporation (the "Strouse Sale"). Accordingly, Aristotle is no longer in the
business of designing, manufacturing, and marketing women's intimate apparel.
Results of Continuing Operations of the Company
Three Months Ended March 31, 1999 as Compared to the Three Months Ended
March 31, 1998.
The Company's general and administrative expenses for the quarter ended
March 31, 1999 increased 39% to $252,000 compared to $181,000 for the prior
year. The increase was primarily due to increases in professional fees and
staffing costs.
Investment and interest income was $226,000 and $51,000 for the three
months ended March 31, 1999 and 1998, respectively. The increase in 1999
reflected income generated by increased investment assets resulting primarily
from the proceeds of the Strouse Sale in June 1998.
The income tax provision for the three months ended March 31, 1999
primarily reflected minimum state taxes.
Preferred dividends were $54,000 for the three months ended March 31, 1999
versus $62,000 for the three months ended March 31, 1998. Preferred dividends
represent dividends paid or accrued during the three months on outstanding
Series E, F, G and H Aristotle Preferred Stock. The Series E Aristotle
Preferred Stock was issued in connection with the Preferred Stock Purchase
Agreement between the Company and Geneve Corporation. The Series F, G and H
Aristotle Preferred Stock were issued in connection with the ASI Merger.
Nine Months Ended March 31, 1999 as Compared to the Nine Months Ended March
31, 1998
The Company's general and administrative expenses for the nine months ended
March 31, 1999 increased 39% to $655,000 compared to $470,000 for the prior
year. The increase was primarily due to increases in directors' compensation,
staffing costs and professional fees.
The nonrecurring tax claim contingency fee of $480,000 incurred during the
nine months ended March 31, 1999 reflected an arrangement entered into in
connection with the income tax refund claim (see income tax discussion below).
Investment and interest income was $609,000 and $109,000 for the nine
months ended March 31, 1999 and 1998, respectively. The increase in 1999
reflected income generated by increased investment assets resulting primarily
from the proceeds of the Strouse Sale in June 1998 and the proceeds from the
sale of the Series E Preferred Stock in January 1998.
10
<PAGE>
The income tax provision of $49,000 for the nine months ended March 31,
1999 primarily reflected minimum state taxes. The income tax benefit of
$1,199,000 for the nine months ended March 31, 1998 resulted from a tax loss
carryback claim related to its 1996 tax year. In connection therewith, the
income tax benefit is net of a $720,000 reserve which is included in accrued
expenses in the accompanying consolidated balance sheet. In addition, the
Company was obligated to pay $480,000 as a result of a contingent fee
arrangement entered into in connection with this income tax refund claim (see
above).
The minority interest expense of $72,000 recognized during the nine months
ended March 31, 1998 was due to preferred dividends paid or accrued on
outstanding ASI Preferred Stock issued to the former Strouse stockholders in
connection with the acquisition of Strouse in 1994. In January 1998, upon
consummation of the ASI Merger, the ASI Preferred Stock was converted into
Series F, G, and H Aristotle Preferred Stock (see below).
Preferred dividends were $178,000 for the nine months ended March 31, 1999
versus $62,000 for the nine months ended March 31, 1998. Preferred dividends
represent dividends paid or accrued during the nine months on outstanding Series
E, F, G and H Aristotle Preferred Stock. The Series E Aristotle Preferred Stock
was issued in connection with the Preferred Stock Purchase Agreement between the
Company and Geneve Corporation in January 1998. The Series F, G and H Aristotle
Preferred Stock were issued in connection with the ASI Merger in January 1998.
Results of Discontinued Operations of the Company
Three months Ended March 31, 1999 as Compared to the Three Months Ended
March 31, 1998
The loss on sale of discontinued operations of $150,000 for the three
months ended March 31, 1999 reflected additional taxes resulting from the
Strouse sale. The income from operations of $100,000 for the three months ended
March 31, 1998 reflected the operations of Strouse.
Nine months Ended March 31, 1999 as Compared to the Nine Months Ended March
31, 1998
Results of discontinued operations of Strouse was a loss of $198,000 for
the nine months ended March 31, 1999 which reflected additional taxes of
$150,000 and the final purchase price adjustment of $48,000 related to the
Strouse sale. As a result of the final purchase price adjustment and the
additional taxes, the ultimate gain recognized by the Company in connection with
the Strouse Sale was $675,000. The income of $657,000 for the nine months ended
March 31, 1998 reflected the operations of Strouse.
Liquidity and Capital Resources
The Company used cash of $325,000 in operations during the nine months
ended March 31, 1999 and used cash of $1,084,000 in operations during the nine
months ended March 31, 1998. During the nine month period ended March 31, 1999,
the use of cash in operations was principally the result of a net loss of
$293,000 and a decrease in accrued expenses partially offset by a decrease in
other assets. During the nine months ended March 31, 1998, the use of cash in
operations was principally the result of increased inventory levels and a
decrease in accounts payable partially offset by income generated by
discontinued operations and increased accrued expenses.
11
<PAGE>
The Company utilized cash of $3,756,000 in investing activities during the
nine months ended March 31, 1999, and utilized cash of $2,420,000 in investing
activities during the nine months ended March 31, 1998. During the nine month
period ended March 31 1999, the utilization of cash was principally due to the
purchase of marketable securities and the payment of transaction costs related
to the Strouse Sale that were accrued for in June 1998. Cash utilized for
investing activities in the nine months ended March 31, 1998 principally
resulted from the restriction of cash of $1,079,000 and the purchase of
restricted investments of $721,000 related to the Preferred Stock Purchase
Agreement, the $150,000 purchase of investments, and the $587,000 purchase of
property and equipment. In addition, during the nine months ended March 31,
1998, the Company used $803,000 to fund the payment of the Put Right, as defined
below. In exchange for the funding of the Put Right, the Company received 80,000
shares of ASI Preferred Stock and 80,000 shares of Series A, B and C Aristotle
Preferred Stock. The utilization of cash during the nine months ended March 31,
1998 was offset by the generation of $900,000 from the sale of marketable
securities.
The Company used cash of $38,000 in financing activities during the nine
months ended March 31, 1999, and generated cash of $4,720,000 from financing
activities during the nine months ended March 31, 1998. Funds used during the
nine month period ended March 1999 were principally for the payment of dividends
partially offset by cash generated from proceeds received from the exercise of
stock options. Funds generated during the nine month period ended March 31,
1998 were primarily a result of the Company drawing $2,561,000 from its line-of-
credit, proceeds of $2,250,000 from the Preferred Stock Purchase Agreement with
Geneve Corporation, and the purchase of an additional 30,000 shares of common
stock by Geneve Corporation for $135,000, partially offset by $164,000 payment
of its leases and term notes payable.
In connection with ASI's acquisition of Strouse in 1994, ASI issued ASI
common stock and ASI preferred stock to the stockholders of Strouse (the "Former
Strouse Stockholders"). The ASI preferred stock included the right to require
ASI to repurchase shares of ASI preferred stock if the holders did not convert
the ASI preferred stock (the "Put Right"). As a result of the ASI Merger on
January 2, 1998, (i) all 33,424 shares of ASI common stock owned by the Former
Strouse Stockholders were exchanged for 33,424 shares of Aristotle Common Stock;
(ii) options to purchase 35,208 shares of ASI common stock held by the Former
Strouse Stockholders were exchanged for options to purchase 35,208 shares of
Aristotle Common Stock; and (iii) all shares of ASI preferred stock owned by the
Former Strouse Stockholders were converted into an aggregate of 80,499 shares of
Series F, G and H Convertible Preferred Stock of Aristotle (the "Series F, G and
H Preferred Stock") .
As of March 31, 1999, a total of 79,882 shares of Series F, G and H
Aristotle Preferred Stock were currently outstanding. Pursuant to the Series F,
G and H Aristotle Preferred Stock redemption features, 39,632 shares of Series
F, G and H were to be redeemable on January 1, 1999, at $10.00 per share, and
40,250 shares of Series F, G and H were to be redeemable on January 1, 2000, at
$10.00 per share. However, as a result of the Strouse Sale, the Former Strouse
Stockholders may require Aristotle to immediately repurchase the Series F, G and
H Aristotle Preferred Stock. Accordingly, Aristotle has deposited cash in a
segregated account in an amount sufficient to pay the entire repurchase price
less employee notes receivable, plus any accrued but unpaid dividends, of the
Series F, G and H Preferred Stock. If the holders of the Series F, G and H
Preferred Stock elect not to redeem this preferred stock, the holders may elect
to convert each such share into 1.667 shares of Aristotle Common Stock, subject
to certain adjustments.
12
<PAGE>
Also, on January 2, 1998, Aristotle and Geneve Corporation ("Geneve")
consummated a transaction which provided for the purchase by Geneve of 489,131
shares of Aristotle's Series E Convertible Preferred Stock (the "Series E
Preferred Stock"). Aristotle has granted to Geneve the right to require
Aristotle to repurchase shares of the Series E Preferred Stock at anytime after
the earlier of December 31, 2001 or upon the occurrence of certain acceleration
events (the "Geneve Put Right"). Similarly, after December 31, 2001, the Series
E Preferred Stock may be redeemed at the option of Aristotle, and after December
31, 2007 the Series E Preferred Stock is subject to mandatory redemption by
Aristotle (the "Geneve Redemption Right"). The repurchase price under the
Geneve Put Right and the Geneve Redemption Right is $4.60 per share, subject to
adjustment for certain recapitalization events, plus any accrued but unpaid
dividends.
Aristotle is actively working to acquire one or more operating companies in
addition to its recent acquisition of Simulaids, Inc. See "Recent Developments"
below. In the meantime, Aristotle anticipates that there will be sufficient
financial resources to meet Aristotle's projected working capital and other cash
requirements for the next twelve months.
Recent Developments
On May 4, 1999, Aristotle acquired all the outstanding stock of
Simulaids, Inc., a privately-held New York company ("Simulaids"), pursuant
to a Stock Purchase Agreement dated as of April 30, 1999 between
Aristotle and Kevin Sweeney (the "Seller") for an aggregate purchase
price of $8.4 million in cash. Simulaids, located in Woodstock, New York,
manufactures health and medical education teaching aids. Simulaids proprietary
products include manikins and simulation kits used for training in the CPR,
emergency rescue and patient care fields. Simulaids has become a wholly-owned
operating subsidiary of Aristotle.
Year 2000 Issue
In 1997, Aristotle began, for all of its computer systems, a Year 2000
conversion project to address all necessary code changes, testing and
implementation. This initial Year 2000 conversion project was terminated upon
the sale of Strouse Adler on June 30, 1998. Recently, Aristotle has purchased
computer equipment which is Year 2000 compliant. However, there can be no
assurance that the systems of other companies on which Aristotle's systems rely
will be timely converted or that any such failure to convert by another company
would not have an adverse effect on Aristotle's systems.
As noted above, Aristotle recently acquired Simulaids. Simulaids has
developed, implemented and tested its Year 2000 conversion project to ensure
that its computer systems are Year 2000 complaint. Aristotle is in the process
of reviewing the implementation and testing of Simulaids' year 2000 conversion
project and, based upon such review, Aristotle will take additional steps to
ensure compliance. There can be no assurance, however, that Simulaids'
conversion project will be successful or that the systems of other companies on
which Simulaids' systems rely will be timely converted or that such a failure to
convert by another company would not have a material adverse effect on
Simulaids' systems.
13
<PAGE>
Certain Factors That May Affect Future Results of Operations
Aristotle believes that this report may contain forward-looking statements
within the meaning of the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include
statements regarding Aristotle's liquidity and are based on management's current
expectations and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described in the forward-
looking statements. Aristotle cautions investors that there can be no assurance
that actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result of various
factors, including, but not limited to, the following: (i) the ability of
Aristotle to obtain financing and additional capital to fund its business
strategy on acceptable terms, if at all; (ii) the ability of Aristotle on a
timely basis to find, prudently negotiate and consummate one or more additional
acquisitions; (iii) the ability of Aristotle to retain and take advantage of its
net operating tax loss carryforward position; (iv) Aristotle's ability to manage
any acquired or to be acquired companies; and (v) general economic conditions.
As a result, Aristotle's future development efforts and operations involve a
high degree of risk. For further information, refer to the more specific risks
and uncertainties discussed throughout this report.
14
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Interest income on the Company's investments is carried in "Other income
(expense)." The Company accounts for its investment instruments in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). All of the cash
equivalents and short-term investments are treated as available-for-sale under
SFAS 115.
Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, the Company's future investment income may fall short of expectations
due to changes in interest rates or the Company may suffer losses in principal
if forced to sell securities which have seen a decline in market value due to
changes in interest rates. The Company's investment securities are held for
purposes other than trading.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
None
Item 2 Changes in Securities.
None
Item 3 Defaults Upon Senior Securities.
None
Item 4 Submission of Matters to a Vote of Security Holder.
None
Item 5 Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed in the three months ended March
31, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The Aristotle Corporation
/s/ John J. Crawford
--------------------------------------
John J. Crawford
Its President, Chief Executive Officer and
Chairman of the Board
Date: May 14, 1999
/s/ Paul McDonald
--------------------------------------
Paul McDonald
Its Chief Financial Officer and Secretary
(principal financial and chief accounting
officer)
Date: May 14, 1999
16
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
3.1 Restated Certificate of Incorporation of The Aristotle Corporation,
incorporated herein by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
3.2 Amended and Restated Bylaws of the Registrant, incorporated herein by
reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997.
4.1 Restated Certificate of Incorporation of The Aristotle Corporation and
Amended and Restated Bylaws filed as Exhibits 3.1 and 3.2 are
incorporated into this item by reference. See Exhibit 3.1 and Exhibit
3.2 above.
4.2 Certificate of Powers, Designations, Preferences and Relative,
Participating, Optional and other Special Rights of the Series E
Convertible Preferred Stock of the Registrant, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
4.3 Certificate of Powers, Designations, Preferences and Relative,
Participating, Optional and other Special Rights of the Series F, G
and H Convertible Preferred Stock of the Registrant, incorporated
herein by reference to Exhibit 4.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
4.4 Registration Rights Agreement dated as of April 11, 1994 between the
Registrant and the shareholders listed on Exhibit A thereto,
incorporated by reference to an exhibit to the Registrant's
Registration Statement on Form S-3 (File No. 333-4185).
4.5 Registration Rights Agreement dated as of October 22, 1997 between The
Aristotle Corporation and Geneve Corporation, incorporated herein by
reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997.
4.6 Letter Agreement dated as of September 15, 1997 among The Aristotle
Corporation, Aristotle Sub, Inc. and certain stockholders,
incorporated herein by reference to Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1997
10.1 Pledge and Escrow Agreement dated as of April 11, 1994 by and among
Aristotle Sub, Inc. and certain other parties, incorporated herein by
reference to Exhibit 2.8 of the of the Registrant's Current Report on
Form 8-K dated April 14, 1994, as amended.
17
<PAGE>
10.2 Security Agreement dated as of April 11, 1994 by and among The
Strouse, Adler Company and certain other parties, incorporated herein
by reference to Exhibit 2.9 of the of the Registrant's Current Report
on Form 8-K dated April 14, 1994, as amended.
10.3 Term Promissory Notes dated April 11, 1994 payable to The Aristotle
Corporation, incorporated herein by reference to Exhibit 2.12 of the
of the Registrant's Current Report on Form 8-K dated April 14, 1994,
as amended.
10.4 Employment Agreement dated as of December 1, 1998 by and between The
Aristotle Corporation and Paul McDonald, incorporated herein by
reference to Exhibit 10.1 of the Registrant's Registration Statement
on Form S-3 filed on December 16, 1998.
10.5 Stockholder Loan Pledge Agreements dated as of April 11, 1994 by and
between certain parties and The Aristotle Corporation, incorporated
herein by reference to Exhibit 2.13 of the Registrant's Current Report
on Form 8-K dated April 14, 1994, as amended.
10.6 Letter Agreement by and among The Aristotle Corporation, Aristotle
Sub, Inc., Alfred Kniberg and David Howell dated June 27, 1995,
incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
10.7 Letter Agreement dated October 27, 1995 Re: Amended Put Rights,
incorporated herein by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1995.
10.8 Stock Option Plan of The Aristotle Corporation, as amended,
incorporated herein by reference to Exhibit 10.2 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.
10.9 Form of Stock Option Agreement (for non-employee directors),
incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1992.
10.10 Form of Incentive Stock Option Agreement (for employees), incorporated
herein by reference to Exhibit 10.4 of the Registrant's Annual Report
for the fiscal year ended June 30, 1992.
27 Financial Data Schedule is attached hereto as Exhibit 27.
18
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THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM CONSOLIDATED
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