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, 2000
|_| 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, 2000, 1,830,680 shares of Common Stock, $.01 par value per
share, were outstanding.
1
<PAGE>
THE ARISTOTLE CORPORATION
INDEX OF INFORMATION CONTAINED IN FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 2000
Page
----
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 2000 and
June 30, 1999.....................................................3
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended March 31, 2000 and 1999.....................4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 2000 and 1999..............................5
Simulaids Historical Balance Sheet at March 31, 1999 .................6
Simulaids Historical Statement of Operations for the Three and
Nine Months Ended March 31, 1999..................................7
Simulaids Historical Statement of Cash Flows for the Nine Months
Ended March 31, 1999..............................................8
Notes to Condensed Consolidated Financial Statements..................9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................13
Item 3 - Quantitative and Qualitative Disclosure About Market Risk............16
Part II - Other Information
Item 1 - Legal Proceedings....................................................18
Item 2 - Changes in Securities................................................18
Item 3 - Defaults Upon Senior Securities......................................18
Item 4 - Submission of Matters to a Vote of Security Holders..................18
Item 5 - Other Information....................................................18
Item 6 - Exhibits and Reports on Form 8-K.....................................18
Signatures....................................................................19
Exhibit Index.................................................................20
2
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
ASSETS ----------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................... $ 4,314 $ 5,849
Marketable securities ............................................................... 100 702
Marketable securities and cash equivalents held in escrow, at market value .......... 95 157
Accounts receivable, net ............................................................ 428 299
Inventories ......................................................................... 965 989
Tax receivable ...................................................................... 250 1,150
Other current assets ................................................................ 158 187
--------- ---------
Total current assets ............................................................ 6,310 9,333
--------- ---------
Property and equipment, net ............................................................. 1,413 1,478
--------- ---------
Other assets:
Marketable securities, at market value .............................................. 1,773 1,386
Marketable securities, held in escrow, at market value .............................. -- 552
Goodwill, net of amortization of $210 and $39 at March 2000 and June 1999 ........... 5,513 5,685
Other noncurrent assets ............................................................. 9 51
--------- ---------
7,295 7,674
--------- ---------
$ 15,018 $ 18,485
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings ............................................................... $ -- $ 5,000
Current maturities of long term debt ................................................ 252 25
Current maturities of Series F, G and H Preferred Stock ............................. 95 799
Accounts payable .................................................................... 109 143
Accrued expenses .................................................................... 464 829
Accrued tax reserves ................................................................ 720 720
--------- ---------
Total current liabilities ....................................................... 1,640 7,516
--------- ---------
Long term debt, net of current maturities ............................................... 1,734 111
--------- ---------
Subordinated debt ....................................................................... 330 --
--------- ---------
Commitments and contingencies
Series E Redeemable Preferred Stock ..................................................... -- 2,250
--------- ---------
Stockholders' equity:
Common stock, $.01 par value, 3,000,000 shares authorized, 1,832,754 and 1,240,727
shares issued as of March 2000 and June 1999, respectively ..................... 19 13
Additional paid-in capital .......................................................... 162,893 160,403
Retained earnings (deficit) ......................................................... (151,204) (151,600)
Treasury stock, at cost, 17,834 shares in March 2000 and 7,609 shares in June 1999 .. (93) (47)
Net unrealized investment losses ................................................ (301) (161)
--------- ---------
Total stockholders' equity ...................................................... 11,314 8,608
--------- ---------
$ 15,018 $ 18,485
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
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,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ........................................................ $ 1,577 $ -- $ 4,910 $ --
Cost of goods sold ............................................... 801 -- 2,756 --
------- ----- ------- -----
Gross profit ............................................. 776 -- 2,154 --
------- ----- ------- -----
Selling expenses ................................................. 145 -- 377 --
General and administrative expenses .............................. 426 252 1,190 655
Goodwill amortization ............................................ 57 -- 172 --
------- ----- ------- -----
Operating income (loss) .................................. 148 (252) 415 (655)
------- ----- ------- -----
Other income (expense):
Investment and interest income ............................... 72 226 243 609
Interest expense ............................................. (33) -- (117) --
------- ----- ------- -----
Income (loss) from continuing operations before income taxes 187 (26) 541 (46)
Provision for income taxes ...................................... (6) (49) (35) (49)
------- ----- ------- -----
Income (loss) from continuing operations ................... 181 (75) 506 (95)
Loss on sale of discontinued operations .......................... -- (150) -- (198)
------- ----- ------- -----
Net income (loss) .......................................... 181 (225) 506 (293)
Preferred dividends .............................................. -- 54 109 178
------- ----- ------- -----
Net income (loss) applicable to common shareholders ........ $ 181 $(279) $ 397 $(471)
======= ===== ======= =====
Basic earnings per common share:
Continuing operations ........................................ $ .12 $(.11) $ .30 $(.22)
Loss on sale of discontinued operations ...................... -- (.12) -- (.16)
------- ----- ------- -----
Net income (loss) .......................................... $ .12 $(.23) $ .30 $(.38)
======= ===== ======= =====
Diluted earnings per common share:
Continuing operations ........................................ $ .10 $(.11) $ .27 $(.22)
Loss on sale of discontinued operations ...................... -- (.12) -- (.16)
------- ----- ------- -----
Net income (loss) .......................................... $ .10 $(.23) $ .27 $(.38)
======= ===== ======= =====
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 506 $ (293)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Goodwill amortization ............................................. 172 --
Depreciation and amortization ..................................... 139 1
Changes in assets and liabilities:
Accounts receivable ........................................... (129) --
Inventories ................................................... 24 --
Tax receivable ................................................ 900 --
Other assets .................................................. 33 426
Accounts payable .............................................. (34) --
Accrued expenses .............................................. (319) (459)
------- --------
Net cash provided by (used in) operating activities ....... 1,292 (325)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption (purchase) of marketable securities ....................... 688 (2,038)
Payments of transaction costs from disposal of discontinued operations -- (1,704)
Purchase of property and equipment ................................... (74) (8)
------- --------
Net cash provided by (used in) investing activities ....... 614 (3,750)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of revolving loan .......................................... (5,000) --
Proceeds from credit agreement ....................................... 2,000 --
Principal debt payments .............................................. (131) --
Repayment of capital lease obligations ............................... (19) --
Repurchase of preferred stock ........................................ (136) (6)
Proceeds from exercise of stock options .............................. -- 157
Purchase of treasury stock ........................................... (46) (17)
Payment of dividends on preferred stock .............................. (109) (178)
------- --------
Net cash used in financing activities ..................... (3,441) (44)
------- --------
DECREASE IN CASH AND CASH EQUIVALENTS .................................... (1,535) (4,119)
CASH AND CASH EQUIVALENTS, beginning of period ........................... 5,849 12,271
------- --------
CASH AND CASH EQUIVALENTS, end of period ................................. $ 4,314 $ 8,152
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
SIMULAIDS, INC.
CONDENSED BALANCE SHEET
(Unaudited)
As of March 31, 1999
(dollars in thousands, except for share data)
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 251
Accounts receivable, net ............................................ 469
Inventories ......................................................... 1,010
Other current assets ................................................ 95
------
Total current assets ............................................ 1,825
------
Property and equipment, net ............................................. 1,245
------
Other assets ............................................................ 210
------
$3,280
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt ................................ $ 25
Accounts payable .................................................... 43
Accrued expenses .................................................... 41
------
Total current liabilities ....................................... 109
------
Long term debt, net of current maturities ........................... $ 117
------
Stockholders' equity:
Common stock, $1 par value, 2,000 shares authorized, 100 shares
issued and outstanding ............................................ 1
Additional paid-in capital .......................................... 5
Retained earnings ................................................... 3,047
------
Total stockholders' equity ...................................... 3,053
------
$3,280
======
The accompanying notes are an integral part of this condensed
financial statement.
6
<PAGE>
SIMULAIDS, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(dollars in thousands)
Three Months Ended Nine Months Ended
March 31, 1999 March 31, 1999
-------------- --------------
Net sales .................................. $ 1,425 $ 4,402
Cost of goods sold ......................... 855 2,480
------- -------
Gross profit ....................... 570 1,922
------- -------
Selling expenses ........................... 81 268
General and administrative expenses ........ 259 798
------- -------
Operating income ................... 230 856
------- -------
Other income (expense):
Investment and interest income ......... 1 8
Interest expense ....................... (2) (7)
------- -------
Income before income taxes ......... 229 857
Provision for income taxes ................. 4 14
------- -------
Net income ......................... $ 225 $ 843
======= =======
The accompanying notes are an integral part of this
condensed financial statement.
7
<PAGE>
SIMULAIDS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine months ended March 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 843
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 198
Changes in assets and liabilities:
Accounts receivable ....................................................... (73)
Inventories ............................................................... (175)
Other assets .............................................................. (99)
Accounts payable .......................................................... (38)
Accrued expenses .......................................................... (28)
-----
Net cash provided by operating activities ............................. 628
-----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .............................................. (138)
-----
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders ................................................... (765)
Proceeds from lease agreement ................................................... 146
Payments on long-term debt ...................................................... (121)
-----
Net cash used in financing activities ................................. (740)
-----
DECREASE IN CASH AND CASH EQUIVALENTS ............................................... (250)
CASH AND CASH EQUIVALENTS, beginning of period ...................................... 501
-----
CASH AND CASH EQUIVALENTS, end of period ............................................ $ 251
=====
</TABLE>
The accompanying notes are an integral part of this condensed
financial statement.
8
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(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 and nine months ended March 31, 1999 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 and nine months ended March 31, 2000 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. The credit agreement is comprised of three
facilities ("Credit Facilities"):
(1) $1,200,000 Seven-Year Term Loan - 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 rate
at the Company's election.
(2) $800,000 Seven-Year Mortgage - Principal payments are scheduled on a
fifteen year straight-line amortization, with a balloon payment at the
seven-year maturity. The interest rate is charged at the rate of Libor
plus 200 basis points on a 30, 60, 90 or 180 day Libor rate at the
Company's election.
(3) $500,000 Two-Year 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. 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 rate at the Company's election.
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; to 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.
As of May 5, 2000, the balance outstanding on the term loan was $1,085,714
and the balance outstanding on the mortgage was $764,444. As of May 5, 2000,
there was no balance outstanding on the line of credit. As of May 5, 2000,
recourse under the Aristotle guaranty is limited to $885,714.
9
<PAGE>
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 and nine
months ended March 31, 2000 and 1999, Basic and diluted earnings per share are
calculated as follows:
Three Months Ended March 31
(in thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
2000 1999
---- ----
Basic Earnings per Share:
<S> <C> <C>
Numerator
Income from continuing operations ........................................ $ 181 $ (75)
Preferred dividends ...................................................... -- (54)
---------- -----------
Income (loss) from continuing operations applicable to common shareholders 181 (129)
Income (loss) from discontinued operations ............................... -- (150)
---------- -----------
Net income (loss) applicable to common shareholders .................. $ 181 $ (279)
========== ===========
Denominator
Weighted average shares outstanding ...................................... 1,562,936 1,233,118
========== ===========
Basic Earnings Per Share Per Common Shareholder
Continuing operations .................................................... $ .12 $ (.11)
Discontinued operations .................................................. -- (.12)
---------- -----------
Net income (loss) .................................................... $ .12 $ (.23)
========== ===========
Diluted Earnings per Share:
Numerator
Income from continuing operations ........................................ $ 181 $ (75)
Preferred dividends ...................................................... -- (54)
---------- -----------
Income (loss) from continuing operations applicable to common shareholders 181 (129)
Income (loss) from discontinued operations ............................... -- (150)
---------- -----------
Net income (loss) applicable to common shareholders .................. $ 181 $ (279)
========== ===========
Denominator
Weighted average shares outstanding ...................................... 1,845,293 1,233,118
========== ===========
Diluted Earnings Per Share Per Common Shareholder
Continuing operations .................................................... $ .10 $ (.11)
Discontinued operations .................................................. -- (.12)
---------- -----------
Net income (loss) .................................................... $ .10 $ (.23)
========== ===========
</TABLE>
10
<PAGE>
Nine Months Ended March 31
(in thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
2000 1999
---- ----
Basic Earnings per Share:
<S> <C> <C>
Numerator
Income (loss) from continuing operations ................................. $ 506 $ (95)
Preferred dividends ...................................................... (109) (178)
----------- -----------
Income (loss) from continuing operations applicable to common shareholders 397 (273)
Income (loss) from discontinued operations ............................... -- (198)
----------- -----------
Net income (loss) applicable to common shareholders .................. $ 397 $ (471)
=========== ===========
Denominator
Weighted average shares outstanding ...................................... 1,341,268 1,233,700
=========== ===========
Basic Earnings Per Share Per Common Shareholder
Continuing operations .................................................... $ .30 $ (.22)
Discontinued operations .................................................. -- (.16)
----------- -----------
Net income (loss) .................................................... $ .30 $ (.38)
=========== ===========
Diluted Earnings per Share:
Numerator
Income (loss) from continuing operations ................................. $ 506 $ (95)
Preferred dividends ...................................................... -- (178)
----------- -----------
Income (loss) from continuing operations applicable to common shareholders 506 (273)
Income (loss) from discontinued operations ............................... -- (198)
----------- -----------
Net income (loss) applicable to common shareholders .................. $ 506 $ (471)
=========== ===========
Denominator
Weighted average shares outstanding ...................................... 1,851,057 1,233,700
=========== ===========
Diluted Earnings Per Share Per Common Shareholder
Continuing operations .................................................... $ .27 $ (.22)
Discontinued operations .................................................. -- (.16)
----------- -----------
Net income (loss) .................................................... $ .27 $ (.38)
=========== ===========
</TABLE>
11
<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 and nine months ended March 31, 2000 and 1999 is as
follows:
Three Months Ended March 31,
(unaudited)
(in thousands of dollars)
2000 1999
---- ----
Net income (loss) .................................... $181 $(225)
Net unrealized investment gain (loss) ................ 20 (92)
---- -----
Comprehensive income (loss) .......................... $201 $(317)
==== =====
Nine Months Ended March 31,
(unaudited)
(in thousands of dollars)
2000 1999
---- ----
Net income (loss) .................................... $ 506 $(293)
Net unrealized investment gain (loss) ................ (140) (88)
----- -----
Comprehensive income (loss) .......................... $ 366 $(381)
===== =====
5. Other Events
On January 3, 2000, a holder of Series H Preferred Stock of the Company
exercised his right to put 13,617 shares of Series H Preferred Stock, with an
aggregate value of $136,170, to the Company in exchange for $90,110 in cash and
the cancellation of a loan from the Company to him in the amount of $46,060.
On February 9, 2000, Geneve Corporation, the Company's largest
shareholder, elected to convert 545,940 shares of Series E, F, G, and H
Preferred Stock, with an aggregate value of $2,818,090, into 583,813 shares of
Common Stock and a promissory note issued by the Company in the amount of
$330,000 due December 31, 2001 and bearing interest at the rate of 8%. The
Preferred Stock Purchase Agreement entered into October 22, 1997 was modified
primarily to state that voting restrictions would lapse with respect to the
election of Directors and the appointment of auditors on December 31, 2001.
As anticipated and as discussed in the Company's Annual Report on Form
10-K for the year ended June 30, 1999, the Company received from the Internal
Revenue Service a letter disallowing the two carryback claims filed on its
amended 1992 return and on its 1996 return. This disallowance at the field
examination level was not unexpected by the Company. The Company and its
advisors continue to believe the claims have merit and, therefore, the Company
will continue to pursue its case at the Internal Revenue Service Appellate
level. The Company recorded a net benefit of $719,000 in 1997 related to the
1996 claim.
12
<PAGE>
6. Subsequent Events
During April and May 2000, Geneve Corporation elected to convert 9,456
shares of Series F, G, and H Preferred Stock, with an aggregate value of
$94,560, into 15,759 shares of Common Stock.
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 and nine months ended March 31, 2000,
as compared to the three months and nine months ended March 31, 1999. 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
Three Months Ended March 31, 2000 As Compared to the Three Months Ended
March 31, 1999
The Company's net sales of $1,577,000 for the three months ended March 31,
2000 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 $776,000 for the three months ended March 31, 2000
represents the gross profit of Simulaids. There was no gross profit in the same
period last year which was prior to the acquisition of Simulaids.
Selling expense of $145,000 for the three months ended March 31, 2000
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 March 31, 2000 increased 69.0% to $426,000 compared to $252,000 for the
comparable 1999 fiscal quarter. The increase was primarily due to the inclusion
of the operating expenses of Simulaids partially offset by a decrease in
professional fees.
Investment and interest income was $72,000 and $226,000 for the three
months ended March 31, 2000 and 1999, respectively. The decrease in 2000 was
mainly due to lower investment balances, reflecting the utilization of
investment balances in the purchase of Simulaids.
Interest expense for the three months ended March 31, 2000 was $33,000
versus no interest expenses in the prior year period. The increase primarily
reflected interest expense on the borrowed funds utilized in the acquisition of
Simulaids and subsequently procurred mortgage financing.
There were no preferred dividends for the three months ended March 31,
2000 compared to $54,000 for the three months ended March 31, 1999. The decrease
was principally due to the conversion of 545,940 shares of Preferred Stock into
583,813 shares of Common Stock on February 9, 2000.
The income tax provision was $6,000 and $49,000 for the three months ended
March 31, 2000 and 1999, respectively. The tax provisions mainly represent state
income taxes.
13
<PAGE>
Nine Months Ended March 31, 2000 As Compared to the Nine Months Ended
March 31, 1999
The Company's net sales of $4,910,000 for the nine months ended March 31,
2000 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 $2,154,000 for the nine months ended March 31, 2000
represents the gross profit of Simulaids. There was no gross profit in the same
period last year, which was prior to the acquisition of Simulaids.
Selling expense of $377,000 for the nine months ended March 31, 2000
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 nine months
ended March 31, 2000 increased 81.7% to $1,190,000 compared to $655,000 for the
comparable 1999 fiscal quarter. The increase was primarily due to the inclusion
of the operating expenses of Simulaids partially offset by a decrease in
professional fees.
Investment and interest income was $243,000 and $609,000 for the nine
months ended March 31, 2000 and 1999, respectively. The decrease in 2000 was
mainly due to lower investment balances, reflecting the utilization of
investment balances in the purchase of Simulaids.
Interest expense for the nine months ended March 31, 2000 was $117,000
versus no interest expenses in the prior year period. The increase primarily
reflected interest expense on the borrowed funds utilized in the acquisition of
Simulaids and subsequently procurred mortgage financing.
Preferred dividends were $109,000 for the nine months ended March 31, 2000
compared to $178,000 for the nine months ended March 31, 1999. The decrease was
principally due to the conversion of 545,940 shares of Preferred Stock into
583,813 shares of Common Stock on February 9, 2000.
The income tax provision was $35,000 and $49,000 for the nine months ended
March 31, 2000 and 1999, respectively. The tax provisions mainly represent state
income taxes.
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
Three Months Ended March 31, 2000 As Compared to the Three Months Ended
March 31, 1999
Simulaids' net sales of $1,577,000 for the three months ended March 31,
2000 were 10.7% higher than the net sales of $1,425,000 recorded in the three
months ended March 31, 1999. The increase primarily reflected increased manikin
sales to distributors.
Simulaids' gross profit for the three months ended March 31, 2000
increased to $776,000 from $570,000 for the prior year, and the gross margin
percentage increased to 49.2% from 40.0%. The increase in gross profit and gross
margin percentage was principally due to the sales increase and improved
manufacturing efficiency partially offset by increases in raw material prices
and labor rates.
Operating expenses include selling and administration costs. Operating
expenses for the three months ended March 31, 2000 were $386,000 versus $340,000
for the three months ended March 31, 1999. The increase was mainly due to
increased consulting fees.
Investment and interest income was $3,000 and $1,000 for the three months
ended March 31, 2000 and 1999, respectively. Fluctuations in investment and
interest income generated each year were a direct result of the cash balances
maintained.
14
<PAGE>
Interest expense for the three months ended March 31, 2000 increased to
$30,000 from $2,000 in the prior year. The increase in interest expense
primarily resulted from the $2,000,000 in bank borrowings.
Nine Months Ended March 31, 2000 As Compared to the Nine Months Ended
March 31, 1999
Simulaids' net sales of $4,910,000 for the nine months ended March 31,
2000 were 11.5% higher than the net sales of $4,402,000 recorded in the nine
months ended March 31, 1999. The increase principally reflected increased
manikin sales to distributors.
Simulaids' gross profit for the nine months ended March 31, 2000 increased
to $2,154,000 from $1,922,000 for the prior year, and the gross margin
percentage increased to 43.9% from 43.7%. The increase in gross profit and gross
margin percentage was principally due to the sales increase and improved
manufacturing efficiency partially offset by increases in raw material prices
and labor rates.
Operating expenses include selling and administration costs. Operating
expenses for the nine months ended March 31, 2000 were $1,083,000 versus
$1,066,000 for the nine months ended March 31, 1999. The $17,000, or 1.6%,
increase was principally a result of increased consulting fees partially offset
by decreases in administrative compensation.
Investment and interest income was $9,000 and $8,000 for the nine months
ended March 31, 2000 and 1999, 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 nine months ended March 31, 2000 increased to
$115,000 from $7,000 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 March 31, 2000 with $4,314,000 in cash and cash
equivalents versus cash and cash equivalents of $5,849,000 at June 30, 1999.
Cash consumed during the nine month period was principally used to reduce bank
debt by $3,000,000 which was partially offset by the receipt of a tax refund of
$900,000 and redemption of marketable securities of $700,000. The overall
decrease in cash and cash equivalents of $1,535,000 is detailed below.
The Company generated cash of $1,292,000 from operations during the nine
months ended March 31, 2000 and used cash of $325,000 in operations during the
nine months ended March 31, 1999. During the nine month period ended March 31,
2000, the generation of cash from operations was principally the result of the
receipt of a tax refund of $900,000, net income of $506,000, and depreciation
and amortization of $311,000. 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.
The Company generated cash of $614,000 from investing activities during
the nine months ended March 31, 2000, and utilized cash of $3,750,000 in
investing activities during the nine months ended March 31, 1999. During the
nine month period ended March 31, 2000, the generation of cash was principally
due to the redemption of marketable securities of $688,000 partially offset by
capital expenditures of $74,000. 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.
The Company utilized cash of $3,441,000 in financing activities during the
nine months ended March 31, 2000, and used cash of $44,000 in financing
activities during the nine months ended March 31, 1999. Funds utilized in the
nine month period ended March 31, 2000 primarily reflected the reduction of debt
by $3,150,000 and the repurchase of preferred stock of $136,000. 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.
15
<PAGE>
Capital resources in the future are expected to be used in the development
of the Simulaids business and to acquire additional companies in the education
and training field. 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.
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 March
31, 2000 are as follows:
Maturity less Maturity greater
than one year than one year
------------- -------------
Marketable securities held in escrow
Cost value $ 95
Weighted average return 5.8%
Fair market value $ 95
Marketable securities
Cost value $ 101 $ 2,073
Weighted average return 6.0% 7.6%
Fair market value $ 100 $ 1,773
Long-term borrowings
Amount $ 252 $ 2,064
Weighted average interest rate 7.8% 7.9%
Fair market value $ 252 $ 2,064
16
<PAGE>
Year 2000 Issue
The Year 2000 Issue arose as a result of computer programs that were
written using two digits rather than four to define the year. There was concern
that information technology systems and other systems using such programs that
have date sensitive software would recognize a date using "00" as the year 1900
rather than the year 2000. Accordingly, computer systems and software used by
many companies and governmental agencies needed to be upgraded to comply with
Year 2000 requirements or risk system failure or miscalculations causing
disruptions of operations.
The Company completed its Year 2000 conversion efforts in 1999. Based on
these efforts, prior to December 31, 1999, the Company believed that its
principal information systems were Year 2000 compliant.
In addition, prior to December 31, 1999, the Company contacted its
significant suppliers, customers and critical business partners to determine the
Year 2000 readiness of these parties and to determine the extent to which it
would be vulnerable in the event these parties were not Year 2000 compliant.
Based on these communications, prior to December 31, 1999, the Company was not
aware of any significant exposure in this regard.
Subsequent to December 31, 1999, the Company has not experienced any
significant problems associated with the Year 2000 compliance of its own
operating and information systems and it has not experienced any problems with
the Year 2000 compliance of third parties, including its significant suppliers,
customers and critical business partners or any governmental agencies and
service providers. The Company does not expect to experience any significant
problems associated with the Year 2000 Issue in the future.
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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
None
Item 2 - Changes in Securities.
See Footnotes 5 and 6 - "Other Events" and "Subsequent Event" to the
Condensed Consolidated Financial Statements accompanying this form 10-Q.
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:
A Form 8-K was filed on May 2, 2000, reporting (Item 5. Other
Events) on the entering into of a Letter Agreement with Geneve
Corporation dated April 28, 2000, confirming the consent of the
Company's Board of Directors allowing Geneve Corporation, subject to
certain limitations, to purchase up to 51% of the Company's issued
and outstanding shares of Common Stock, including Common Stock
equivalents.
18
<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 12, 2000
/s/ Paul McDonald
---------------------------------------------------
Paul McDonald
Its Chief Financial Officer and Secretary
(principal financial and chief accounting officer)
Date: May 12, 2000
19
<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.
4.7 Letter Agreement dated as of February 9, 2000 between The Aristotle
Corporation and the Geneve Corporation regarding certain limitations on
voting and the acquisition of additional shares of common stock.
20
<PAGE>
4.8 Letter Agreement dated as of April 28, 2000 between The Aristotle
Corporation and the Geneve Corporation, modifying the letter agreement
between such parties dated as of February 9, 2000, regarding certain
limitations on voting and the acquisition of additional shares of common
stock, incorporated herein by reference to the Registrant's Report on Form
8-K dated May 2, 2000.
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.
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.
21
<PAGE>
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