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 December 31, 1998
[_] 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 February 5, 1999, 1,233,118 shares of Common Stock, $.01 par value
per share, were outstanding.
THE ARISTOTLE CORPORATION
INDEX OF INFORMATION CONTAINED IN FORM 10-Q FOR THE
QUARTER ENDED DECEMBER 31, 1998
Page
----
Part I Financial Information
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 1998 and June 30, 1998........ 3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended
December 31, 1998 and 1997......................................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1998 and 1997......................................................... 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
2
THE ARISTOTLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
December 31, June 30,
1998 1998
------------ ----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents............................................................... $ 9,701 $ 12,271
Marketable securities................................................................... 710 202
Marketable securities and cash equivalents held in escrow, at market value.............. 610 600
Other current assets.................................................................... 233 568
-------- --------
Total current assets................................................................... 11,254 13,641
-------- --------
Property and equipment, net.................................................................. 11 4
-------- --------
Other assets:
Marketable securities, at market value................................................... 2,239 867
Other noncurrent assets.................................................................. 59 70
-------- --------
2,298 937
-------- --------
$ 13,563 $ 14,582
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of Series F, G and H Preferred Stock.................................. $ 805 $ 805
Accrued expenses......................................................................... 383 648
Accrued transaction costs................................................................ 1,000 1,704
Accrued tax reserves..................................................................... 720 720
-------- --------
Total current liabilities.............................................................. 2,908 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 December 1998 and June 1998................................. 13 11
Additional paid-in capital............................................................... 160,401 160,248
Retained earnings (deficit).............................................................. (151,962) (151,770)
Treasury stock, at cost, 7,500 and 7,287 shares at September 1998 and June 1998.......... (47) (30)
Net unrealized investment gains.......................................................... (4)
-------- --------
Total stockholders' equity............................................................. 8,405 8,455
-------- --------
$ 13,563 $ 14,582
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
THE ARISTOTLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ----------------------------
1998 1997 1998 1997
----------- ----------- ------------ -------------
Operating expenses:
General and administrative........................... $ 232 $ 133 $ 403 $ 288
Nonrecurring tax claim contingency fee............... -- 480 -- 480
----- ----- ----- -----
Operating loss..................................... (232) (613) (403) (768)
----- ----- ----- -----
Other income (expense):
Investment and interest income....................... 208 40 383 57
Interest expense..................................... -- (2) -- (4)
----- ----- ----- -----
Loss from continuing operations before income
taxes and minority interest........................ (24) (575) (20) (715)
Benefit from (provision for) income taxes.............. -- 1,199 -- 1,199
----- ----- ----- -----
Income (loss) from continuing operations
before minority interest........................... (24) 624 (20) 484
Minority interest...................................... -- 35 -- 72
----- ----- ----- -----
Income (loss) from continuing operations........... (24) 589 (20) 412
Discontinued Operations:
Income from operations of The Strouse, Adler Company. -- 172 -- 557
Gain (loss) on sale of The Strouse, Adler Company.... -- -- (48) --
----- ----- ----- -----
Net income (loss).................................. (24) 761 (68) 969
Preferred dividends.................................... 61 -- 124 --
----- ----- ----- -----
Net income (loss) applicable to common shareholders $ (85) $ 761 $(192) $ 969
===== ===== ===== =====
Basic earnings (loss) per common share:
Continuing operations................................ $(.07) $ .53 $(.12) $ .37
Discontinued operations.............................. -- .16 -- .51
Gain (loss) on sale of discontinued operations....... -- -- (.04) --
----- ----- ----- -----
Net income (loss).................................. $(.07) $ .61 $(.12) $ .88
===== ===== ===== =====
Diluted earnings (loss) per common share:
Continuing operations................................ $(.07) $ .48 $(.12) $ .35
Discontinued operations.............................. -- .13 -- .43
Gain (loss) on sale of discontinued operations....... -- -- (.04) --
----- ----- ----- -----
Net income (loss).................................. $(.07) $ .61 $(.16) $ .78
===== ===== ===== =====
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Six Months Ended
December 31,
1998 1997
-------- --------
Cash flows from operating activities:
Net income (loss)................................... $ (68) $ 969
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................... 1 288
Changes in assets and liabilities:
Accounts receivable............................ -- 348
Inventories.................................... -- (1,716)
Other assets................................... 346 493
Accounts payable............................... -- (845)
Accrued expenses............................... (266) 856
------- -------
Net cash provided by operating activities... 13 393
------- -------
Cash flows from investing activities:
Purchase of marketable securities................... (1,890) --
Minority interest................................... -- 21
Repurchase of preferred stock....................... -- (21)
Unrealized investment gains/(losses)................ 4 --
Payment of transaction costs from
disposal of discontinued operations............... (704) --
Purchase of property and equipment.................. (8) (376)
------- -------
Net cash used in investing activities....... (2,598) (376)
------- -------
Cash flows from financing activities:
Net borrowings under line of credit................. -- 2,099
Principal payments under note payable............... -- (224)
Proceeds from exercise of stock options............. 156 --
Purchase of treasury stock.......................... (17) --
Dividends paid .................................... (124) --
------- -------
Net cash provided by financing activities... 15 1,875
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (2,570) 1,892
CASH AND CASH EQUIVALENTS, beginning of period........ 12,271 139
------- -------
CASH AND CASH EQUIVALENTS, end of period.............. $ 9,701 $ 2,031
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
THE ARISTOTLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations:
--------------------
The Aristotle Corporation (Company or Aristotle) is a holding company with
no operating subsidiary. Aristotle is currently seeking to acquire one or more
operating companies. 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 six months ended December 31, 1998
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 months ended and six months ended December 31, 1998 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
2. Earnings per Common Share
-------------------------
Aristotle has adopted the provisions of SFAS 128, "Earnings Per Share".
The prior information ended December 31, 1997 has been restated as a result of
the adoption. For the three months and six months ended December 31, 1998 and
1997, Basic and Diluted earnings per share are calculated as follows:
Three Months Ended December 31
- ----------------------------------------------------------
(in thousands of dollars, except share and per share data)
1998 1997
-------------- --------------
Basic Earnings per share:
Numerator
Income (loss) from continuing operations.......................... $ (24) $ 589
Preferred dividends............................................... (61) --
---------- ----------
Income (loss) from continuing operations
applicable to common shareholders............................... (85) 589
Income (loss) from discontinued operations........................ -- 172
---------- ----------
Net income (loss) applicable to common shareholders............... $ (85) $ 761
========== ==========
Denominator
Weighted average shares outstanding................................. 1,233,118 1,108,032
========== ==========
Basic Earnings Per Share Per Common Shareholder
Continuing operations............................................... $ (0.07) $ 0.53
Discontinued operations............................................. -- 0.16
---------- ----------
Net income (loss) per share................................ $ (0.07) $ 0.69
========== ==========
Diluted Earnings per Share:
Numerator
Income (loss) from continuing operations............................ $ (24) $ 589
Preferred dividends................................................. (61) --
---------- ----------
Income (loss) from continuing operations
applicable to common shareholders.................................. (85) 589
Income (loss) from discontinued operations.......................... -- 172
---------- ----------
Net income (loss) applicable to common shareholders........ $ (85) $ 761
========== ==========
Denominator
Weighted average shares outstanding................................. 1,233,118 1,108,032
Minority interest convertible preferred stock....................... -- 134,165
Minority interest convertible common stock.......................... -- 33,426
---------- ----------
$1,233,118 $1,275,623
========== ==========
Diluted Earnings Per Share Per Common Shareholder
Continuing operations............................................... $ (0.07) $ 0.48
Discontinued operations............................................. -- 0.13
Gain (loss) on sale of discontinued operations....................... -- --
---------- ----------
Net income (loss) per share................................. $ (0.07) $ 0.61
========== ==========
For the three months ended December 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 operations applicable to holders of common stock.
7
Six Months Ended December 31
- ----------------------------------------------------------
(in thousands of dollars, except share and per share data)
1998 1997
--------------- -----------
Basic Earnings per share:
Numerator
Income (loss) from continuing operations............................. $ (20) $ 412
Preferred dividends.................................................. (124) --
---------- ----------
Income (loss) from continuing operations
applicable to common shareholders................................... $ (144) 412
Income (loss) from discontinued operations........................... -- 557
Gain (loss) on sale of discontinued operations...................... (48) --
---------- ----------
Net income (loss) applicable to common shareholders......... $ (192) $ 969
========== ==========
Denominator
Weighted average shares outstanding.................................. 1,219,094 1,103,273
========== ==========
Basic Earnings Per Share Per Common Shareholder
Continuing operations................................................ $ (0.12) $ 0.37
Discontinued operations.............................................. -- 0.51
Gain (loss) on sale of discontinued operations....................... (0.04) --
---------- ----------
Net income (loss) per share................................. $ (0.16) $ 0.88
========== ==========
Diluted Earnings per Share:
Numerator
Income (loss) from continuing operations............................. $ (20) $ 412
Preferred dividends.................................................. (124) --
---------- ----------
Income (loss) from continuing operations
applicable to common shareholders................................... (144) 412
Income (loss) from discontinued operations........................... -- 557
Gain (loss) on sale of discontinued operations....................... (48) --
---------- ----------
Net income (loss) applicable to common shareholders......... $ (192) $ 969
========== ==========
Denominator
Weighted average shares outstanding.................................. 1,219,094 1,103,273
Minority interest convertible preferred stock........................ -- 169,494
Minority interest convertible common stock........................... -- 33,426
---------- ----------
1,219,094 1,306,193
========== ==========
Diluted Earnings Per Share Per Common Shareholder
Continuing operations................................................ $ (0.12) $ 0.35
Discontinued operations.............................................. -- 0.43
Gain (loss) on sale of discontinued operations....................... (0.04) --
---------- ----------
Net income (loss) per share.................................. $ (0.16) $ 0.78
========== ==========
For the six months ended December 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 operations applicable to holders of common stock.
8
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 six months ended December 31, 1998 and 1997
is as follows:
Three Months Ended
December 31,
------------
(In thousands of Dollars)
1998 1997
---- ----
Net income (loss) $(24) $761
Net unrealized investment gain/(loss) (3) --
---- ----
Comprehensive income (loss) $(27) $761
==== ====
Six Months Ended
December 31,
------------
(In thousands of Dollars)
1998 1997
---- ----
Net income (loss)............... $(68) $969
Net unrealized investment gain.. 4 --
---- ----
Comprehensive income (loss)..... $(64) $969
==== ====
9
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 six months ended December 31, 1998,
as compared to the three months and six months ended December 31, 1997. 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.
Aristotle is currently seeking to acquire one or more operating companies.
Results of Continuing Operations of the Company
Three Months Ended December 31, 1998 as Compared to the Three Months Ended
December 31, 1997
The Company's general and administrative expenses for the quarter ended
December 31, 1998 increased 74% to $232,000 compared to $133,000 for the prior
year. The increase was primarily due to increases in professional fees,
stockholder expenses, directors compensation and staffing costs.
The nonrecurring tax claim contingency fee of $480,000 incurred during the
three months ended December 31, 1997 reflected an arrangement entered into in
connection with the income tax refund claim (see income tax discussion below).
Investment and interest income was $208,000 and $40,000 for the three
months ended December 31, 1998 and 1997, respectively. The increase in 1998
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.
The income tax benefit of $1,199,000 for the three months ended December
31, 1997 resulted from a tax loss carryback claim related to the Company's 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.
The minority interest expense of $35,000 recognized during the quarter
ended December 31, 1997 was due to preferred dividends paid or accrued on
outstanding ASI Preferred Stock issued to the Former Strouse Stockholders in
connection with the Strouse Acquisition 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.
Preferred dividends were $61,000 for the three months ended December 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 was issued in connection with the ASI
Merger.
10
Six Months Ended December 31, 1998 as Compared to the Six Months Ended
December 31, 1997
The Company's general and administrative expenses for the six months ended
December 31, 1998 increased 39% to $403,000 compared to $288,000 for the prior
year. The increase was primarily due to increases in stockholder expenses,
directors compensation and staffing costs.
The nonrecurring tax claim contingency fee of $480,000 incurred during the
six months ended December 31, 1997 reflected an arrangement entered into in
connection with the income tax refund claim (see income tax discussion below).
Investment and interest income was $383,000 and $57,000 for the six months
ended December 31, 1998 and 1997, respectively. The increase in 1998 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.
The income tax benefit of $1,199,000 for the six months ended December 31,
1997 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.
The minority interest expense of $72,000 recognized during the six months
ended December 31, 1997 was due to preferred dividends paid or accrued on
outstanding ASI Preferred Stock issued to the Former Strouse Stockholders in
connection with the Strouse Acquisition 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.
Preferred dividends were $124,000 for the six months ended December 31,
1998. Preferred dividends represent dividends paid or accrued during the six
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 was issued in connection with the ASI
Merger.
Results of Discontinued Operations of the Company
Three months Ended December 31, 1998 as Compared to the Three Months Ended
December 31, 1997
The income from operations of $172,000 for the three months ended December
31, 1997 reflected the operations of Strouse.
Six months Ended December 31, 1998 as Compared to the Six Months Ended
December 31, 1997
Results of the discontinued operations of Strouse was a loss of $48,000 for
the six months ended December 31, 1998 that reflected the final purchase price
adjustment related to the June 1998 sale of assets of Strouse. As a result of
the final purchase price adjustment, the ultimate gain recognized by the Company
in connection with the Strouse Sale was $825,000. The income of $557,000 for
the six months ended December 31, 1997 reflected the operations of Strouse.
11
Liquidity and Capital Resources
The Company generated cash of $13,000 from operations during the six months
ended December 31, 1998 and generated cash of $393,000 from operations during
the six months ended December 31, 1997. During the six month period ended
December 31, 1998, the generation of cash from operations was principally the
result of a decrease in other assets partially offset by a decrease in accrued
expenses. During the six months ended December 31, 1997, the generation of cash
from operations was principally the result of income generated by discontinued
operations and the tax loss carryback claim plus increased accrued expenses
partially offset by an increase in inventory levels and a decrease in accounts
payable.
The Company utilized cash of $2,598,000 in investing activities during the
six months ended December 31, 1998, and utilized cash of $376,000 in investing
activities during the six months ended December 31, 1997. During the six month
period ended December 31 1998, the utilization of cash was principally due to
the purchase of marketable securities and the payments of transaction costs
related to the Strouse Sale that were accrued for in June 1998. Cash utilized
for investing activities in the six months ended December 31, 1997 principally
reflected the purchase of property and equipment.
The Company generated cash of $15,000 from financing activities during the
six months ended December 31, 1998, and generated cash of $1,875,000 from
financing activities during the six months ended December 31, 1997. Funds
provided during the six month period ended December 1998 were generated from
proceeds received from the exercise of stock options, partially offset by the
purchase of treasury stock and the payment of dividends. Funds provided during
the six month period ended December 1997 were principally generated from
borrowings under the line of credit and were used to fund the working capital
needs of Strouse.
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 December 31, 1998, a total of 80,499 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, 40,249 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
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 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.
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. The 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.
Also, Aristotle's business strategy is to utilize the net proceeds from the
Strouse Sale and its net operating tax loss carryforward to fund the acquisition
of one or more operating companies with a history of stable or growing earnings.
However, there can be no assurance that any company that Aristotle may acquire
will have implemented a Year 2000 conversion project to address all necessary
code changes or that any program which has been implemented will be successful.
Any such failure to implement a successful conversion project may have a
material, adverse effect on Aristotle.
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
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 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.
13
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable
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
December 31, 1998
14
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: February 11, 1999
/s/ Paul McDonald
------------------
Paul McDonald
Its Chief Financial Officer and Secretary
(principal financial and chief accounting officer)
Date: February 11, 1999
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EXHIBIT INDEX
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Exhibit
Number Description
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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.
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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.
TRADOCS: 1171566.2 (p3z$02!.doc)
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