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 September 30, 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 November 10, 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 SEPTEMBER 30, 1999
Page
----
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30,
1999 and June 30, 1999.............................................. 3
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1999 and 1998...................... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 1998...................... 5
Simulaids Historical Balance Sheet at September 30, 1998 ........... 6
Simulaids Historical Statement of Operations for the
Three Months Ended September 30, 1998............................... 7
Simulaids Historical Statement of Cash Flows for the
Three Months Ended September 30, 1998............................... 8
Notes to Condensed Consolidated Financial Statements................ 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 12
Item 3 - Quantitative and Qualitative Disclosure About Market Risk........... 15
Part II - Other Information
Item 1 - Legal Proceedings................................................... 17
Item 2 - Changes in Securities............................................... 17
Item 3 - Defaults Upon Senior Securities..................................... 17
Item 4 - Submission of Matters to a Vote of Security Holders................. 17
Item 5 - Other Information................................................... 17
Item 6 - Exhibits and Reports on Form 8-K.................................... 17
Signatures................................................................... 18
Exhibit Index................................................................ 19
2
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
--------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................................. $ 2,916 $ 5,849
Marketable securities ...................................................................... 502 702
Marketable securities and cash equivalents held in escrow, at market value ................. 165 157
Accounts receivable, net ................................................................... 440 299
Inventories ................................................................................ 963 989
Tax receivable ............................................................................. 1,150 1,150
Other current assets ....................................................................... 225 187
--------- ---------
Total current assets .................................................................... 6,361 9,333
--------- ---------
Property and equipment, net .................................................................... 1,472 1,478
--------- ---------
Other assets:
Marketable securities, at market value ..................................................... 1,347 1,386
Marketable securities, held in escrow, at market value ..................................... 527 552
Goodwill, net of amortization of $96 and $39 at September 1999 and June 1999 ............... 5,628 5,685
Other noncurrent assets .................................................................... 44 51
--------- ---------
7,546 7,674
--------- ---------
$ 15,379 $ 18,485
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings ...................................................................... $ -- $ 5,000
Current maturities of long term debt ....................................................... 232 25
Current maturities of Series F, G and H Preferred Stock .................................... 799 799
Accounts payable ........................................................................... 94 143
Accrued expenses ........................................................................... 750 829
Accrued tax reserves ....................................................................... 720 720
--------- ---------
Total current liabilities ............................................................... 2,595 7,516
--------- ---------
Long term debt, net of current maturities ...................................................... 1,879 111
--------- ---------
Commitments and contingencies
Series E Redeemable Preferred Stock ............................................................ 2,250 2,250
--------- ---------
Stockholders' equity:
Common stock, $.01 par value, 3,000,000 shares authorized, 1,240,727
shares issued .......................................................................... 13 13
Additional paid-in capital ................................................................. 160,403 160,403
Retained earnings (deficit) ................................................................ (151,498) (151,600)
Treasury stock, at cost, 7,609 shares ...................................................... (47) (47)
Net unrealized investment losses ........................................................... (216) (161)
--------- ---------
Total stockholders' equity .............................................................. 8,655 8,608
--------- ---------
$ 15,379 $ 18,485
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated finanical statements.
3
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)
Three Months Ended
September 30,
--------------------
1999 1998
------- -------
Net sales .............................................. $ 1,646 $ --
Cost of goods sold ..................................... 975 --
------- -------
Gross profit ...................................... 671 --
------- -------
Selling expenses ....................................... 103 --
General and administrative expenses .................... 360 171
Goodwill amortization .................................. 57 --
------- -------
Operating income (loss) ........................... 151 (171)
------- -------
Other income (expense):
Investment and interest income ....................... 75 175
Interest expense ..................................... (40) --
------- -------
Income from continuing operations before income taxes 186 4
Provision for income taxes ............................ 30 --
------- -------
Income from continuing operations ................. 156 4
Loss on sale of discontinued operations ................ -- (48)
------- -------
Net income (loss) ................................. 156 (44)
Preferred dividends .................................... 54 63
------- -------
Net income (loss) applicable to common shareholders $ 102 $ (107)
======= =======
Basic earnings per common share:
Continuing operations ................................ $ .08 $ (.05)
Loss on sale of discontinued operations .............. -- (.04)
------- -------
Net income (loss) ................................. $ .08 $ (.09)
======= =======
Diluted earnings per common share:
Continuing operations ................................ $ .08 $ (.05)
Loss on sale of discontinued operations .............. -- (.04)
------- -------
Net income (loss) ................................. $ .08 $ (.09)
======= =======
The accompanying notes are an integral part of these
condensed consolidated finanical statements.
4
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ 156 $ (44)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Goodwill amortization ..................................................... 57 --
Depreciation and amortization ............................................. 49 --
Changes in assets and liabilities:
Accounts receivable ................................................... (141) --
Inventories ........................................................... 26 --
Other assets .......................................................... (31) 243
Accounts payable ...................................................... (49) --
Accrued expenses ...................................................... (79) (256)
-------- --------
Net cash used in operating activities .............................. (12) (57)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption (purchase) of marketable securities ............................. 200 (3,836)
Payments of transaction costs from disposal of
discontinued operations ................................................... -- (704)
Purchase of property and equipment ......................................... (43) (7)
-------- --------
Net cash provided by (used in) investing activities ................ 157 (4,547)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of revolving loan ................................................ (5,000) --
Proceeds from credit agreement ............................................. 2,000 --
Principal debt payments .................................................... (19) --
Repayment of capital lease obligations ..................................... (5) --
Proceeds from exercise of stock options .................................... -- 156
Purchase of treasury stock ................................................. -- (17)
Payment of dividends on preferred stock .................................... (54) (63)
-------- --------
Net cash (used in) provided by financing activities ................ (3,078) 76
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (2,933) (4,528)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 5,849 12,271
-------- --------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 2,916 $ 7,743
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated finanical statements.
5
<PAGE>
SIMULAIDS, INC.
CONDENSED BALANCE SHEET
As of September 30, 1998
(Unaudited)
(dollars in thousands, except for share data)
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 754
Accounts receivable, net ......................................... 440
Inventories ...................................................... 836
Other current assets ............................................. 49
------
Total current assets .......................................... 2,079
------
Property and equipment, net .......................................... 1,156
------
Other assets ......................................................... 190
------
$3,425
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt ............................. $ 21
Accounts payable ................................................. 62
Accrued expenses ................................................. 34
------
Total current liabilities ..................................... 117
------
Long term debt, net of current maturities ............................ 91
------
Stockholders' equity:
Common stock, $1 par value, 2,000 shares authorized, 100 shares
issued and outstanding ......................................... 1
Additional paid-in capital ....................................... 5
Retained earnings (deficit) ...................................... 3,211
------
Total stockholders' equity .................................... $3,217
------
$3,425
======
The accompanying notes are an integral part of these
condensed consolidated finanical statements.
6
<PAGE>
SIMULAIDS, INC.
CONDENSED STATEMENT OF OPERATIONS
For the three months ended September 30, 1998
(Unaudited)
(dollars in thousands)
Net sales ................................................... $ 1,786
Cost of goods sold .......................................... 895
-------
Gross profit .......................................... 891
-------
Selling expenses ............................................ 79
General and administrative expenses ......................... 271
-------
Operating income ...................................... 541
-------
Other income (expense):
Investment and interest income .......................... 3
Interest expense ........................................ (3)
-------
Income before income taxes ............................ 541
Provision for income taxes ................................. 5
-------
Net income ............................................ $ 536
=======
The accompanying notes are an integral part of these
condensed consolidated finanical statements.
7
<PAGE>
SIMULAIDS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended September 30, 1998
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................... 75
Changes in assets and liabilities:
Accounts receivable ...................................... (45)
Other assets ............................................. (31)
Accounts payable ......................................... (19)
Accrued expenses ......................................... (36)
-----
Net cash provided by operating activities ............. 480
-----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................ (32)
-----
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders ................................. (190)
Payments on long-term debt .................................... (5)
-----
Net cash used in financing activities ................. (195)
-----
DECREASE IN CASH AND CASH EQUIVALENTS ............................. 253
CASH AND CASH EQUIVALENTS, beginning of period .................... 501
-----
CASH AND CASH EQUIVALENTS, end of period .......................... $ 754
=====
The accompanying notes are an integral part of these
condensed consolidated finanical statements.
8
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. Nature of Operations
The Aristotle Corporation ("Aristotle") is a holding company which,
through its wholly-owned subsidiary, Simulaids, Inc. ("Simulaids"), currently
conducts business in one segment, the health and medical educational products
market. Simulaids' primary products include manikins, and simulation kits used
for training in CPR, emergency rescue and patient care fields. Simulaids'
products are sold throughout the United States and internationally via
distributors and catalogs to end users such as fire and emergency medical
departments and nursing and medical schools.
Unless the context indicates otherwise, all references herein to the
"Company" for the three months ended September 30, 1998 include only Aristotle
and S.A. Subsidiary, and all other references herein to the "Company" include
Aristotle, Simulaids, and S-A Subsidiary.
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 months ended September 30, 1999 are not necessarily indicative of results
that may be expected for the year ending June 30, 2000. For further information,
refer to the consolidated financial statements and notes included in Aristotle's
Annual Report on Form 10-K for the year ended June 30, 1999.
2. Debt Agreement
On September 27, 1999, Simulaids and Citizens Bank of Connecticut entered
into a $2.5 million Credit Agreement. This agreement was comprised of three
facilities ("Credit Facilities"):
(1) $1,200,000 Term Loan - The maturity on the term loan is seven years after
the closing. Principal payments are scheduled on a seven year
straight-line amortization. The interest rate is charged at the rate of
Libor plus 200 basis points on a 30, 60, 90 or 180 day Libor in accordance
with the option chosen by Simulaids.
(2) $800,000 Mortgage - The maturity on the mortgage is seven years after the
closing. Principal payments are scheduled on a fifteen year straight-line
amortization, with a balloon payment at maturity. The interest rate is
charged at the rate of Libor plus 200 basis points on a 30, 60, 90 or 180
day Libor in accordance with the option chosen by Simulaids.
(3) $500,000 Revolving Line of Credit - Borrowing availability under the line
of credit is determined by a borrowing base which is equal to the sum of
80% of eligible accounts receivable and 50% of eligible inventory, with a
maximum borrowing of $500,000. The maturity on the line of credit is two
years after the closing. There are no scheduled principal payments. The
interest rate is charged at the rate of Libor plus 175 basis points on a
30, 60, 90 or 180 day Libor in accordance with the option chosen by
Simulaids.
The Credit Facilities are secured by a lien on all assets of Simulaids.
Aristotle has guaranteed the Credit Facilities with recourse under the guaranty
limited to $1,000,000. The guarantee limit of $1,000,000 shall be reduced by an
amount equal to the principal payments made on the term loan. Simulaids must
maintain certain financial ratios and satisfy various other covenants in
connection with the Credit Facilities.
9
<PAGE>
As of November 11, 1999, the balance outstanding on the term loan was
$1,171,429 and the balance outstanding on the mortgage was $791,111. As of
November 11, 1999, there was no balance outstanding on the line of credit. As of
November 11, 1999, recourse under the Aristotle guaranty is limited to $971,429.
3. Earnings per Common Share
The Company calculates earnings per share in accordance with the
provisions of SFAS 128, "Earnings Per Share". For the three months September 30,
1999 and 1998, Basic and Diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30
(in thousands of dollars, except share and per share data)
1999 1998
----------- -----------
<S> <C> <C>
Basic Earnings per share:
Numerator
Income from continuing operations .......................... $ 156 4
Preferred dividends ........................................ (54) (63)
----------- -----------
Income (loss) from continuing operations
applicable to common shareholders ....................... 102 (59)
Loss on sale of discontinued operations .................... -- (48)
----------- -----------
Net income (loss) applicable to common shareholders $ 102 $ (107)
=========== ===========
Denominator
Weighted average shares outstanding ........................ 1,233,118 1,205,691
=========== ===========
Basic Earnings Per Share Per Common Shareholder
Continuing operations ...................................... $ .08 $ (.05)
Loss on sale of discontinued operations .................... -- (.04)
----------- -----------
Net income (loss) ................................. $ .08 $ (.09)
=========== ===========
Diluted Earnings per Share:
Numerator
Income from continuing operations .......................... $ 156 $ 4
Preferred dividends ........................................ (54) (63)
----------- -----------
Income (loss) from continuing operations
applicable to common shareholders ........................ 102 (59)
Loss on sale of discontinued operations .................... -- (48)
----------- -----------
Net income (loss) applicable to common shareholders $ 102 $ (107)
=========== ===========
Denominator
Weighted average shares outstanding ........................ 1,339,383 1,205,691
=========== ===========
Diluted Earnings Per Share Per Common Shareholder
Continuing operations ...................................... $ .08 $ (.05)
Loss on sale of discontinued operations .................... -- (.04)
----------- -----------
Net income (loss) .................................. $ .08 $ (.09)
=========== ===========
</TABLE>
10
<PAGE>
4. 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) for the three months ended September 30, 1999 and 1998 is as follows:
Three Months Ended
September 30,
-------------
(Unaudited)
(In thousands of dollars)
1999 1998
----- -----
Net income (loss) ........................ $ 156 $ (44)
Net unrealized investment gain (loss) .... (55) 7
----- -----
Comprehensive income (loss) .............. $ 101 $ (37)
===== =====
11
<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 months ended September 30, 1999, as compared
to the three months ended September 30, 1998. This discussion and analysis of
financial condition and results of operations have been derived from, and should
be read in conjunction with, the unaudited Consolidated Financial Statements and
Notes to Consolidated Financial Statements contained elsewhere in this report.
As of April 30, 1999, Aristotle acquired all of the outstanding stock of
Simulaids, Inc. ("Simulaids"), a manufacturer of health and education teaching
aids. Simulaids is currently Aristotle's only operating subsidiary.
Results of Operations of the Company
The Company's net sales of $1,646,000 for the three months ended September
30, 1999 represent the net sales of Simulaids. There were no net sales in the
same period last year which was prior to the acquisition of Simulaids.
Gross profit of $671,000 for the three months ended September 30, 1999
represents the operations of Simulaids. There was no gross profit in the same
period last year which was prior to the acquisition of Simulaids.
Selling expense of $103,000 for the three months ended September 30, 1999
represents the selling expenses of the Simulaids operation. There were no
selling expenses in the same period last year which was prior to the acquisition
of Simulaids.
The Company's general and administrative expenses for the three months
ended September 30, 1999 increased 110.5% to $360,000 compared to $171,000 for
the comparable 1998 fiscal quarter. The increase was primarily due to the
operating expenses of Simulaids of $218,000 partially offset by decreases in
Aristotle professional fees and insurance.
Investment and interest income was $75,000 and $175,000 for the three
months ended September 30, 1999 and 1998, respectively. The decrease in 1999 is
mainly due to lower investment balances, which reflect the utilization of cash
in the purchase of Simulaids.
Interest expense for the three months ended September 30, 1999 was $40,000
versus no interest expenses in the prior year period. The increase reflected
interest expense on the borrowed funds utilized in the acquisition of Simulaids.
The income tax provision for the three months ended September 30, 1999 was
$30,000 compared to no provision for the three months ended September 30, 1998.
The tax provision for the current quarter represents state taxes.
Preferred dividends were $54,000 for the three months ended September 30,
1999 compared to $63,000 for the three months ended September 30, 1998. The
decrease was principally due to the end of
12
<PAGE>
the payment of dividends on 39,634 shares of Preferred Stock issued in
connection with the original acquisition of Strouse.
Loss on discontinued operations results from the final purchase price
adjustment related to the June 1998 sale of the assets of Strouse resulting in a
decrease in the gain previously recorded.
Results of Operations of Simulaids, on a stand alone basis
Simulaids' net sales of $1,646,000 for the three months ended September
30, 1999 were 7.8% lower than the net sales of $1,786,000 recorded in the three
months ended September 30, 1998. The change primarily reflected unusually high
sales to distributors in the prior year period.
Simulaids' gross profit for the three months ended September 30, 1999
decreased to $671,000 from $891,000 for the prior year, and the gross margin
percentage decreased to 40.8% from 49.8%. The decrease in gross profit was
principally due to the sales decrease and increases in raw material consumption
and labor costs.
Operating expenses include selling and general and administrative.
Operating expenses for the three months ended September 30, 1999 were $321,000
versus $350,000 for the three months ended September 30, 1998. The $29,000, or
8.3%, decrease was principally a result of decreases in administrative
compensation.
Investment and interest income was $1,000 and $3,000 for the three months
ended September 30, 1999 and 1998, respectively. Fluctuations in investment and
interest income generated each year were a direct result of the cash balances
maintained in the business.
Interest expense for the three months ended September 30, 1999 increased
to $35,000 from $3,000 in the prior year. The increase in interest expense
primarily resulted from the $2,000,000 in bank borrowings.
Liquidity and Capital Resources
Aristotle ended the September 30, 1999 quarter with $2,916,000 in cash and
cash equivalents versus cash and cash equivalents of $5,849,000 at June 30,
1999. Cash consumed during the quarter was principally used to reduce bank debt
by $3,000,000. The overall decrease in cash and cash equivalents of $2,933,000
is detailed below.
The Company used cash of $12,000 in operations during the quarter ended
September 30, 1999 and used cash of $57,000 in operations during the quarter
ended September 30, 1998. During the September 1999 quarter, the utilization of
cash in operations was principally the result of an increase of $141,000 in
accounts receivable and a decrease of $79,000 in accrued expenses partially
offset by net income of $156,000 and depreciation and amortization of $106,000.
During the September 1998 quarter, the use of cash in operations was principally
the result of the loss of $44,000 incurred by continuing and discontinued
operations and a decrease in accrued expenses of $256,000 partially offset by a
decrease in other assets of $243,000.
The Company generated cash of $157,000 from investing activities during
the quarter ended September 30, 1999, and utilized cash of $4,547,000 in
investing activities during the quarter ended September 30, 1998. During the
September 1999 quarter, the generation of cash was principally due to
13
<PAGE>
the redemption of marketable securities of $200,000 partially offset by capital
expenditures of $43,000. Cash utilized for investing activities in the three
months ended September 30, 1998 principally reflected the purchase of marketable
securities of $3,836,000 and the payments of $704,000 of transaction costs
related to the Strouse Sale that were accrued for in June 1998.
The Company utilized cash of $3,078,000 in financing activities during the
quarter ended September 30, 1999, and generated cash of $76,000 from financing
activities during the quarter ended September 30, 1998. Funds utilized in the
September 1999 quarter primarily reflected the reduction of bank debt by
$3,000,000. Funds provided during the September 1998 quarter were generated from
proceeds of $156,000 received from the exercise of stock options, partially
offset by the purchase of treasury stock of $17,000 and the payment of dividends
of $63,000.
Capital resources in the future are expected to be used in the development
of the Simulaids business and to acquire additional companies in the health and
medical education field. Other potential uses of cash relate to the payment of
up to $799,000 to holders of the Series F,G, and H Preferred Stock if such
holders exercise the put rights. 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.
14
<PAGE>
Item 3. Quantitative & Qualitative Disclosures About Market Risk
As described below, credit risk and interest rate risk are the primary
sources of market risk to the Company in its marketable securities and
short-term borrowings.
Qualitative
Interest Rate Risk: Changes in interest rates can potentially impact the
Company's profitability and its ability to realize assets and satisfy
liabilities. Interest rate risk is resident primarily in the Company's
marketable securities and short-term borrowings which have fixed coupon or
interest rates.
Credit Risk: The Company's marketable securities are invested in
investment grade corporate bonds and closed-end bond funds, both domestic and
international, which have various maturities.
Quantitative
The Company's marketable securities and long-term borrowings as of September 30,
1999 are as follows:
Maturity less Maturity greater
than one year than one year
------------- -------------
Marketable securities held in escrow
Cost value $ 165 $ 577
Weighted average return 4.9% 7.2%
Fair market value $ 165 $ 527
Marketable securities
Cost value $ 514 $ 1,499
Weighted average return 7.5% 7.5%
Fair market value $ 502 $ 1,347
Long-term borrowings
Amount $ 232 $ 1,879
Weighted average interest rate 7.5% 7.5%
Fair market value $ 232 $ 1,879
Year 2000 Issue
The Year 2000 Issue is essentially the result of computer programs being
written using two digits rather than four to define the year. Any of the
Company's information technology ("IT") systems that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the Year
2000. This could result in a system failure or miscalculation causing disruption
of operations; including among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The problem has the potential to affect "non-IT" systems, that is, operating and
control systems that rely on embedded microprocessors. Embedded microprocessors
have interfaces that are inaccessible to the user and which may contain a date
function that could trigger a malfunction. In
15
<PAGE>
addition, like every other business enterprise, the Company is at risk from Year
2000 Issue failures on the part of its major business counterparts, including
suppliers, distributors, and customers, as well as potential failures in public
and private infrastructure services, including electricity, water, gas,
communications, and financial services. System failures could adversely affect
operations and financial results throughout the Company.
The Company completed its Year 2000 conversion project. In addition, the
Company has initiated formal communications with its significant suppliers,
customers, and critical business partners to determine the extent to which the
Company may be vulnerable in the event those parties fail to properly remediate
their own Year 2000 Issues. While the Company is not presently aware of any such
significant exposure, there can be no guarantee that the systems of third
parties on which the Company relies will be converted in a timely manner, or
that a failure to properly convert by another company would not have a material
adverse effect on the Company.
The Company also relies, both domestically and internationally, upon
government agencies, utility companies, telecommunications services, and other
service providers outside the Company's control. There is no assurance that such
suppliers, governmental agencies, or other third parties will not suffer Year
2000 business disruption. Such failures could have a material adverse effect on
the Company's financial conditional and results of operations.
The Company does not have a contingency plan. The Company may periodically
revise its Year 2000 plans as new information is learned. In addition, this
description of the Company's efforts involves estimates and projections of
future events and activities. These estimates and projections are subject to
change as work continues, and such changes could be substantial.
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 Simulaids and any other 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.
16
<PAGE>
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
September 30, 1998
17
<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: November 15, 1999
/s/ Paul McDonald
--------------------------------------------------
Paul McDonald
Its Chief Financial Officer and Secretary
(principal financial and chief accounting officer)
Date: November 15, 1999
18
<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.
19
<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.
20
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