FORM 10-K/A
AMENDMENT NO. 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended ..................................December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from _________________________ to____________________.
Commission File Number 0-16520
---------------------------------------------------------
ARISTA INVESTORS CORP.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2957684
------------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
116 John Street, New York, New York 10038
------------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 964-2150
----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share
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: ______
-----
The aggregate market value of the voting stock (Class A Common Stock, par
value $.01 per share) held by non-affiliates of the registrant, computed by
reference to the average of the closing bid and asked price, as of April 12,
1995 was $5,083,650.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate number of registrant's outstanding shares on April 12, 1995
was 1,930,600 shares of Class A Common Stock, $0.01 par value, and 47,400 shares
of Class B Common Stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
<PAGE>
Signature
---------
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.
ARISTA INVESTORS CORP.
By: s/ Susan J. Hall
--------------------------------
Dated: August 30, 1995 Name: Susan J. Hall
Title: Senior Vice President and Treasurer
3
<PAGE>
Item 6. CONSOLIDATED SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data)
-----------------------------------------------
<TABLE><CAPTION>
Years Ended December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenue:
Gross premiums earned $ 26,189 $ 24,219 $ 25,274 $ 20,505 $ 21,354
======== ======== ======== ======== ========
Net premiums earned $ 13,094 $ 21,329 $ 15,789 $ 10,253 $ 10,677
Investment income 215 188 235 254 284
Realized investment gains (losses) (3) 47 (108) - (8)
Other income 280 130 204 111 8
Expenses:
Net underwriting expenses (9,114) (16,979) (10,928) (7,174) (7,930)
General and administrative expenses (4,793) (3,731) (3,796) (2,963) (3,207)
-------- -------- -------- -------- --------
Income (loss) before provision
(benefit) for income taxes (321) 984 1,396 481 (176)
Provision (benefit) for income taxes
before tax benefit of net operating
loss carryforward 127 542 699 280 (26)
-------- -------- -------- -------- --------
Net income (loss) before tax benefit
from net operating loss carryforward (448) 442 697 201 (150)
Tax benefit from net operating
loss carryforward 207 - - - -
-------- -------- -------- -------- --------
Net income (loss) $ (241) $ 442 $ 697 $ 201 $ (150)
======== ======== ======== ======== ========
Net income (loss) per common share:
Primary and fully diluted $ (0.11) $ 0.20 $ 0.32 $0.10 $(0.07)
======== ======== ======== ===== ======
Weighted average number of common
shares outstanding
2,229,900 2,254,147 2,221,900 1,978,000 2,229,900
========= ========= ========= ========= =========
Balance sheet data:
Short-term investments $ 208 $ 726 $ 492 $ 999 $ 605
Cash and equivalents 2,725 2,355 2,870 2,253 2,288
Net premiums receivable 3,164 3,326 6,400 7,369 5,548
Total assets 11,919 10,457 13,495 14,207 10,917
Payable to reinsurer 80 62 97 3,880 2,341
Net claims liabilities 2,461 2,084 4,322 2,341 1,937
Net unearned premiums 679 480 937 497 389
Net commissions payable 1,319 440 1,219 1,344 873
Total stockholders' equity 6,011 6,268 5,709 4,957 4,746
</TABLE>
13
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to this firm under the caption "Selected
Financial Data," and to the use of our report dated April 1, 1995 in the
Form 10-K, of Arista Investors Corp.
ROSEN SEYMOUR SHAPSS MARTIN & COMPANY
New York, New York
April 1, 1995
<PAGE>
ARISTA INVESTORS CORP.
FINANCIAL STATEMENTS
AND SCHEDULES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SCHEDULES
------------------------------------------
<TABLE><CAPTION>
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
Page
----
<S> <C>
Independent Auditors' Reports F-2-2A
Financial Statements of the Registrant:
Consolidated Balance Sheets F-3-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in
Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8-27
Financial Statement Schedules of the Registrant:
Schedule I - Summary of Investments - Other
Than Investments in Related Parties S-1
Schedule III - Condensed Financial Information of Registrant S-2-4
Schedules VI, XVI XVIII and all other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the schedule, or because
the information required is included in the Consolidated Financial Statements and notes thereto.
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Arista Investors Corp.:
We have audited the accompanying consolidated balance sheets of
Arista Investors Corp. as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in stockhol-
ders' equity, and cash flows for each of the two years ended
December 31, 1994. These financial statements are the responsibil-
ity of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The
financial statements and schedules of Arista Investors Corp. for
the year ended December 31, 1992 were audited by Blonder, Seymour,
Shapss, Solomon & Company, who merged with Martin Rosen & Company
as of January 1, 1994, and whose report dated March 15, 1993,
expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Arista Investors Corp. at December 31, 1994 and 1993,
and the consolidated results of its operations and its cash flows
for each of the two years then ended, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The financial state-
ment schedules on pages S-1 to S-4 of this Form 10-K are presented
for purposes of complying with the Securities and Exchange Commiss-
ion's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein.
ROSEN SEYMOUR SHAPSS MARTIN & COMPANY
New York, New York
April 1, 1995
F-2
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE><CAPTION>
A S S E T S
-----------
1994 1993
-------------- --------------
<S> <C> <C>
Investments (Notes 1 and 9):
Investment securities:
Bonds and long-term U.S. Treasury obligations,
at amortized cost (market value $2,398,728
in 1994 and $1,981,320 in 1993) $ 2,667,259 $ 1,959,336
Short-term U.S. Treasury obligations at
amortized cost (market value $207,818 in
1994 and $725,605 in 1993) 207,818 726,122
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $143,581 in 1994 and
$147,043 in 1993) 113,304 132,180
Trading securities, at market value (cost
of $3 in 1994 and 1993) 1,018 1,287
-------------- --------------
Total investments 2,989,399 2,818,925
Cash and equivalents (Notes 4 and 9) 2,724,864 2,354,897
Premiums receivable, net (Notes 1 and 8) 3,164,250 3,325,500
Deferred policy acquisition costs, net (Notes 1 and 4) 794,988 234,047
Intangible assets (Notes 1 and 11) 385,053 574,918
Furniture and equipment, at cost, net of accumulated
depreciation of $604,231 in 1994 and $563,211
in 1993 (Note 1) 120,642 157,374
Prepaid and refundable income taxes 817,289 262,847
Other assets (Note 4) 922,550 728,307
-------------- --------------
$ 11,919,035 $ 10,456,815
============== ==============
</TABLE>
(Continued)
F-3
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
(Continued)
DECEMBER 31, 1994 AND 1993
<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Liabilities:
Payable to reinsurer (Note 8) $ 80,393 $ 62,271
Net claims liabilities (Notes 1 and 8) 2,460,723 2,084,000
Net unearned premiums (Notes 1 and 8) 679,183 480,385
Net commissions payable (Notes 2 and 8) 1,319,211 440,304
Accounts payable and accrued expenses 1,089,262 636,190
Deferred income taxes, net (Notes 1 and 7) 279,042 485,900
-------------- --------------
Total liabilities 5,907,814 4,189,050
-------------- --------------
Commitments and contingencies (Notes 3 and 4)
Stockholders' equity (Notes 5 and 6):
Class A common stock, $.01 par value; 9,950,000
shares authorized, 1,940,600 shares issued 19,406 19,406
Class B common stock, $.01 par value; 50,000
shares authorized, 47,400 shares issued and
outstanding 474 474
Additional paid-in capital 4,193,354 4,193,354
Retained earnings 1,855,005 2,096,134
Net unrealized loss on investment securities (30,278) (14,863)
-------------- ---------------
6,037,961 6,294,505
Less 10,000 shares Class A common stock held
in treasury, at cost (26,740) (26,740)
-------------- ---------------
Total stockholders' equity 6,011,221 6,267,765
-------------- --------------
$ 11,919,035 $ 10,456,815
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue (Notes 1, 2, and 12):
Gross premiums earned $ 26,188,858 $ 24,218,510 $ 25,273,710
Ceded premiums earned (Note 8) 13,094,429 2,889,594 9,485,112
-------------- -------------- --------------
Net premiums earned 13,094,429 21,328,916 15,788,598
Net realized investment gains (losses)
(Note 9) (2,603) 47,142 (107,530)
Investment income (Note 9) 215,480 188,200 234,811
Other income 279,536 129,806 203,681
-------------- -------------- --------------
Total revenue 13,586,842 21,694,064 16,119,560
-------------- -------------- --------------
Expenses:
Underwriting:
Gross claims incurred (Note 1) 17,752,700 15,892,986 16,299,408
Ceded claims incurred (Note 8) 8,876,350 2,084,000 6,088,009
-------------- -------------- --------------
Net claims incurred 8,876,350 13,808,986 10,211,399
-------------- -------------- --------------
Gross commissions incurred (Note 2) 4,193,570 3,868,089 4,042,184
Ceded commissions incurred (Note 8) 3,956,192 698,344 3,325,965
-------------- -------------- --------------
Net commissions incurred 237,378 3,169,745 716,219
-------------- -------------- --------------
Total underwriting expenses 9,113,728 16,978,731 10,927,618
General and administrative expenses 4,794,201 3,730,621 3,796,061
-------------- -------------- --------------
Total expenses 13,907,929 20,709,352 14,723,679
-------------- -------------- --------------
Net income (loss) before provision
for income taxes (321,087) 984,712 1,395,881
Provision for income taxes before tax benefit
of net operating loss carryforward (Note 7) 126,900 543,200 699,100
-------------- -------------- --------------
Net income (loss) before tax benefit
from net operating loss carryforward (447,987) 441,512 696,781
Tax benefit from net operating loss
carryforward 206,858 - -
-------------- -------------- --------------
Net income (loss) $ (241,129) $ 441,512 $ 696,781
============== ============== ==============
Net income (loss) per common share
Primary and fully diluted (Note 1) $(0.11) $0.20 $0.32
====== ===== =====
Weighted average number of common
shares outstanding (Note 1) 2,229,900 2,254,147 2,221,900
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Common Stock
----------------------------------------------
Class A Class B
--------------------- ---------------------- Net
Number Par Number Par Additional unrealized
of value of value paid-in Retained loss on
shares $.01 shares $.01 capital earnings investments
--------- -------- ------ ----- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1992 1,940,600 $ 19,406 47,400 $ 474 $4,193,354 $ 957,841 $ (187,272)
Net income - - - - - 696,781 -
Net investment gains - - - - - - 55,871
--------- -------- ------ ----- ---------- ---------- ----------
Balance - December 31, 1992 1,940,600 19,406 47,400 474 4,193,354 1,654,622 (131,401)
Net income - - - - - 441,512 -
Net investment gains - - - - - - 116,538
--------- -------- ------ ----- ---------- ---------- ----------
Balance - December 31, 1993 1,940,600 19,406 47,400 474 4,193,354 2,096,134 (14,863)
Net loss - - - - - (241,129) -
Net investment gains - - - - - - (15,415)
--------- -------- ------ ----- ---------- ---------- ----------
Balance - December 31, 1994 1,940,600 $ 19,406 47,400 $ 474 $ 4,193,354 $1,855,005 $ (30,278)
========= ======== ====== ===== ========== ========== ==========
<CAPTION>
Class A
common
stock
held in
treasury Total
----------- ----------
<S> <C> <C>
Balance - January 1, 1992 $ (26,740) $4,957,063
Net income - 696,781
Net investment gains - 55,871
----------- ----------
Balance - December 31, 1992 (26,740) 5,709,715
Net income - 441,512
Net investment gains - 116,538
----------- ----------
Balance - December 31, 1993 (26,740) 6,267,765
Net loss - (241,129)
Net investment gains - (15,415)
----------- ----------
Balance - December 31, 1994 $ (26,740) $6,011,221
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (241,129) $ 441,512 $ 696,781
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 66,533 90,528 87,697
Amortization of deferred acquisition costs 266,833 128,742 119,360
Amortization of intangible assets 189,865 141,600 141,600
Deferred income taxes (206,858) 53,000 83,900
(Increase) decrease in operating assets:
Premiums receivable, net 161,250 3,074,107 969,351
Prepaid and refundable income taxes (554,442) (262,847) 85,284
Other assets (194,243) (94,678) (106,254)
Increase (decrease) in operating liabilities:
Payable to reinsurer 18,122 (34,792) (3,783,913)
Net claims liabilities 376,723 (2,237,400) 1,979,550
Net unearned premiums 198,798 (456,455) 439,125
Net commissions payable 878,907 (778,297) (125,470)
Accounts payable and accrued expenses 453,072 (84,830) (115,408)
Income taxes payable - (57,957) 57,957
-------------- -------------- --------------
Net cash provided by (used in)
operating activities 1,413,431 (77,767) 529,560
-------------- -------------- --------------
Cash flows from investing activities:
Furniture and equipment acquired (29,801) (74,830) (64,398)
Proceeds from sales of investments 1,003,885 3,133,875 2,531,288
Purchases of investments (1,189,774) (3,418,548) (2,361,575)
Payments and costs associated with
acquired business (827,774) (77,881) (18,000)
-------------- -------------- ---------------
Net cash provided by (used in)
investing activities (1,043,464) (437,384) 87,315
-------------- -------------- --------------
Net increase (decrease) in cash
and equivalents 369,967 (515,151) 616,875
-------------- -------------- --------------
</TABLE>
(Continued)
F-7
<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Cash and equivalents:
Beginning of year $ 2,354,897 $ 2,870,048 $ 2,253,173
-------------- -------------- --------------
End of year $ $ 2,724,864 $ 2,354,897 $ 2,870,048
============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 495,366 $ 959,550 $ 738,936
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-8
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION, BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Organization
------------
Arista Investors Corp. (the "Company") was incorporated
in the State of New York on September 28, 1978 and reincorporated
in the State of Delaware in October 1986. The Company is princi-
pally a holding company with respect to its wholly-owned subsidiar-
ies, Arista Insurance Company ("Arista"), The Collection Group,
Inc. ("Collection") and Arista Administrative Services, Inc.
("Administrative"). Arista was incorporated in the State of New
York on May 21, 1979, was licensed on October 11, 1979 by the New
York State Insurance Department ("NYSID") and is authorized to
write disability insurance. Effective September 1, 1993 Arista
amended its charter and license and now has the authority to write
glass insurance as well as disability insurance. Collection was
incorporated in August 1989 and commenced operations in July 1991.
Collection provides accounts receivable collection services to
companies including Arista. Effective December 31, 1991 Arista
purchased all of the outstanding shares of capital stock of Ameri-
can Accident and Health Insurance Company ("American") (see Note
11). American was organized in April 1987 and licensed by the
NYSID on June 24, 1987 and is also authorized to write disability
insurance. American has been inactive since its acquisition in
1991. Administrative is also an inactive company.
Basis of Presentation
---------------------
The accompanying consolidated financial statements are
prepared in accordance with generally accepted accounting princi-
ples ("GAAP"). GAAP differs from Statutory Accounting Principles
("SAP") used by insurance companies in reporting to state regulato-
ry and industry agencies (see Note 10).
Significant Accounting Policies
-------------------------------
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiar-
ies, Arista, Collection, Administrative and American. All signifi-
cant intercompany balances and transactions have been eliminated.
Revenue Recognition and Premiums Receivable
Premium revenue is recognized evenly over the term of
the policy. Estimates of premiums which have been earned but not
reported are accrued since customers generally report and pay after
the earning period based on the number of employees on their
payroll during the period of coverage. Such estimates are continu-
ally reviewed and updated by management. Any resulting adjustments
are reflected in current operating results.
(Continued)
F-9
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION, BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Significant Accounting Policies (Continued)
------------------------------------------
Revenue Recognition and Premiums Receivable (Continued)
Net unearned premiums represent that portion of
premiums applicable to the unexpired terms of annual policies in
force.
Claims Liabilities
Claims liabilities and claims expense reserves
include estimates of unreported claims and claims expenses based
upon past experience, modified for current trends. Such estimates
are continually reviewed and updated by management and any result-
ing adjustments are reflected in current operating results.
Furniture and Equipment
Furniture and equipment are carried at cost. Depre-
ciation is computed using the straight-line method over the esti-
mated useful lives of the assets. Depreciation expense for each of
the years in the three-year period ending December 31, 1994, was
$66,533, $90,528 and $87,697, respectively.
Investments
At December 31, 1993, the Company adopted SFAS 115
"Accounting for Certain Investments in Debt and Equity Investments"
(see Note 9).
Pursuant to the requirement of SFAS 115, the Company
determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates
such determination at each balance sheet date. Debt securities
that the Company has the positive intent and ability to hold to
maturity are classified as "investment securities" and reported at
amortized cost; debt and equity securities that are bought and held
principally for the purpose of selling them in the near future are
classified as "trading securities" and reported at fair value, with
unrealized gains and losses included in earnings; debt and equity
securities not classified as either investment securities or
trading securities are classified as "available-for-sale securi-
ties" and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
stockholders' equity.
(Continued)
F-10
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION, BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Significant Accounting Policies (Continued)
------------------------------------------
Deferred Policy Acquisition Costs
Policy acquisition costs include fees paid and
certain other costs. These costs are deferred and charged to
income over the future periods in which the related premiums are
earned.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to credit risk consist principally of premiums receivable.
The Company grants credit terms to its customers in the normal
course of business. Concentration of credit risk with respect to
these receivables are considered minimal due to the Company's
diverse customer base throughout the New York area. As part of its
ongoing control procedures, the Company monitors the credit worthi-
ness of its customers. Bad debts have been minimal.
Income Taxes
The Company and its subsidiaries file a consolidated
federal income tax return. Tax returns are prepared using ("SAP").
The Company adopted Statement of Financial Accounting Standards
("SFAS") 109 "Accounting for Income Taxes" in 1993. Deferred
income taxes reflect the future tax consequences of differences
between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end (see Note 7).
Net Income Per Share of Common Stock
Primary income per share of common stock (Class A and
Class B) is computed on the weighted average number of shares of
common stock and common stock equivalents outstanding during each
year. However, common stock equivalents (stock options) are not
included in the computation if their inclusion would have an
anti-dilutive effect on earnings per share.
Intangible Assets
Intangible assets consist of an insurance charter and
a book of insurance. The book of insurance is being amortized on
the straight-line method over five years. The insurance charter is
not subject to amortization (see Note 11).
(Continued)
F-11
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION, BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Significant Accounting Policies (Continued)
------------------------------------------
Consolidated Statement of Cash Flows
For purposes of this statement, certificates of
deposit are considered cash equivalents.
On December 31, 1991, in connection with a stock
purchase agreement (see Note 11), Arista acquired assets of
$6,428,116 and assumed liabilities of $6,286,234. These amounts
have been adjusted to reflect the fair value of the assets acquired
and the liabilities assumed and include intangible assets resulting
from the acquisition in the amount of $1,000,000.
2. RELATED PARTIES TRANSACTIONS
----------------------------
(a) Agents
------
At December 31, 1994 and 1993, Bernard Kooper ("Kooper"),
Chairman of the Board of both the Company and Arista and owner of
6.6% and 100%, respectively of the Company's outstanding Class A
and Class B Common Stock, is one of the general agents under
contract to Arista. Kooper's agency, Bernard Kooper Life Agency,
Inc. (the "Agency"), received approximately $244,000, $258,000 and
$284,000, in commissions from Arista during 1994, 1993 and 1992,
respectively, for premiums on policies placed by the Agency. Such
premiums represented approximately 5.5%, 6.0% and 7.0% of the
consolidated gross premiums earned during the years ended December
31, 1994, 1993, and 1992, respectively. The Agency, in turn, paid
approximately $177,000, $185,000 and $206,000 during 1994, 1993 and
1992, respectively, to brokers, including brokers who are members
of the Board of Directors of Arista who received approximately
$22,000, $21,000 and $16,000 during the years ended December 31,
1994, 1993 and 1992, respectively. Commissions payable to the
Agency at December 31, 1994 and 1993 were $17,166 and $16,716,
respectively.
(b) Employment Agreement
--------------------
The Company has an employment agreement with Kooper which
expires in February 1998 and calls for annual compensation of
$150,000 (see Note 4).
(c) Consulting Agreements
---------------------
Arista had a consulting agreement from May 1993 through
September 1993 with a company principally owned by a director of
both Arista and the Company (see Note 4). Arista paid $5,000 under
this agreement in 1993. In July 1993 Arista entered into an
agreement with a consultant for specified services to be performed
for a fee of $500 per week. The consultant became a director of
Arista in October 1994 (see Note 4). Arista paid $26,000 under
this agreement in 1994.
(Continued)
F-12
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
3. LEASE COMMITMENTS
-----------------
Pursuant to a sublease agreement Arista reimburses the
Company for 80.26% of the Parent's lease obligations. Under a
letter agreement effective January 1, 1993 the Company paid monthly
rent at an annual base rate of $141,696 until a new lease was
executed. On January 9, 1995, the Company entered into a five-year
lease for its new principal executive office space, effective June
1, 1995.
The minimum rental commitments under the operating leases
for office space for the five-year period ending December 31, 1999
are as follows:
1995 $ 176,085
1996 203,095
1997 212,910
1998 222,725
1999 232,540
--------
$1,047,355
=========
The Company has the option to terminate the lease provided
it notifies the landlord ninety (90) days prior to termination
date, and reimburses the landlord for the unamortized portion of
landlord's contribution for leasehold improvements which amounted
to approximately $200,000.
Under a separate sublease, the Company is reimbursed by The
Saltzman/ Kooper Agency, Inc., an affiliate controlled by a direc-
tor of the Company, for a percentage (16.45%) of the lease costs.
The sublease is expected to terminate April 30, 1995.
Aggregate rent expense, net of sublease income of approxi-
mately $30,000, was $137,550 in 1994, $137,638 in 1993 and $164,956
in 1992.
In December 1990 American entered into a five-year noncan-
cellable lease agreement which called for an effective annual base
rent of $44,866 plus utilities and cost of living adjustments. In
December 1991 American abandoned this space and entered into an
agreement which would release it from future obligations under the
lease, if certain conditions specified in the agreement were met.
To date such conditions have not been met.
4. COMMITMENTS AND CONTINGENCIES
-----------------------------
(a) Employment Agreements
---------------------
In July, 1994, Arista entered into a five-year employment
agreement with a vice president which calls for annual compensation
of $125,000, annual reimbursement of automobile expenses up to
$6,000 and a nonaccountable expense allowance of up to $3,600 per
annum. In addition, Arista may, but is not obligated to, pay a
year-end bonus as may be determined by the Board of Directors of
Arista.
(Continued)
F-13
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
4. COMMITMENTS AND CONTINGENCIES (Continued)
----------------------------------------
(a) Employment Agreements (Continued)
--------------------------------
The agreement provides that in the event of the termina-
tion of the agreement by Arista, it will provide severance pay with
the dollar amount ranging from 100% to 60% of annual compensation.
The agreement also provides for a one-year covenant not to compete
predicated upon the payment of $75,000 by Arista.
In June 1986 the Company entered into an employment
agreement with Kooper and Arista entered into a similar employment
agreement with Stanley Mandel ("Mandel"), each of which with
extensions, expired in February 1993. Arista and Mandel entered
into a new eight-year contract which expires in February, 2001 and
provides for an annual base salary of $208,750 in each of the eight
years in the period then ended plus annual reimbursement of automo-
bile expenses up to $9,000 and a non-accountable expense allowance
of up to $5,000 per annum.
Kooper and the Company also entered into a new contract
which expires in February, 2001 and calls for an annual base salary
of $150,000.
Each of Mr. Kooper's and Mr. Mandel's employment agree-
ments provide that, in the event of a consolidation, merger or sale
of all or substantially all of the assets of the Company or Arista,
the employment agreements may be terminated and upon such termina-
tion, Mr. Kooper and/or Mandel, respectively, would be entitled to
receive a lump sum payout. The payout will be the maximum amount
that will not trigger the excise tax payable in the event of an
"excess parachute payment" as such term is defined in the Internal
Revenue Code of 1986, as amended.
In addition, Arista and the Company have also provided,
under Amendment #1 to each employment agreement and a series of
separate agreements, life insurance policies in which both Kooper
and Mandel participate. Under these agreements, the Company and
Arista will pay the premiums on these policies for a period of time
specified in each agreement, on behalf of Kooper and Mandel. The
premium payments are treated as loans to both Kooper and Mandel and
are collateralized by the underlying policy cash values. At
December 31, 1994 and 1993 loans aggregating $78,915 and $35,088,
respectively, have been made and are included in other assets in
the accompanying balance sheet.
Additionally, as specified under Amendment # 1 of each
employment agreement, Kooper and Mandel have the right to receive a
lump sum retirement benefit equal to the amount of the premiums
paid by the Company attributable to the cumulative increase in the
cash surrender values of the policies during the period ending
February 2001.
On December 31, 1991, Arista, in connection with a stock-
purchase agreement (see Note 11), entered into a consulting agree-
ment with the past president and former shareholder of American
(the "consultant") whereby the consultant would receive a monthly
fee and a bonus if premiums earned by Arista on American's former
policies exceeded certain levels. During 1992 this
(Continued)
F-14
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
4. COMMITMENTS AND CONTINGENCIES (Continued)
----------------------------------------
(a) Employment Agreements (Continued)
--------------------------------
consulting agreement was terminated by the Company due to a breach
of the stock purchase agreement and the consulting agreement by the
consultant. In June 1992, Arista and American commenced litigation
against the consultant seeking declaratory and injunctive relief as
well as damages. The consultant counterclaimed against Arista and
American alleging fraud and breach of the consulting agreement.
During 1993 a court granted in part Arista's motion for declaratory
and injunctive relief and recognized Arista as the sole shareholder
of American. The remainder of the litigation was settled in
September 1993 under an agreement in which American, Arista and the
consultant mutually released and discharged each other's affiliates
and heirs. This agreement also entitles the consultant or his
estate to a fee determined by the financial recovery of another
action in which American is a plaintiff.
(b) Uninsured Risk
--------------
At December 31, 1994 cash and equivalents on deposit with
financial institutions exceeded federal deposit insurance coverage
by approximately $2,285,000.
(c) Policy Acquisitions
-------------------
Arista has incurred costs under various agreements it has
entered into while acquiring the right to offer New York State
statutory disability benefits coverage to former policyholders of
other disability carriers. The costs include professional fees and
finder's fees as well as fees paid directly to these disability
carriers for such rights. For financial statement purposes, these
costs have been capitalized and are being amortized on the straight-
line basis over five to seven years. These costs amounted to
$1,677,537 and $849,763 at December 31, 1994 and 1993, respectively.
Accumulated amortization was $882,549 and $615,716 at December
31, 1994 and 1993, respectively.
Amortization of deferred acquisition costs charged to
operations for all acquisitions were $266,833, $128,742 and $119,360
for the years ended December 31, 1994, 1993 and 1992, respectively.
Effective July 1, 1993, Arista acquired the right to
offer New York State statutory disability benefits coverage to
policyholders previously covered by The American Life Insurance
Company of New York. In consideration for this right, Arista will
pay a fee based on premiums earned and collected during the two-
year period ended June 30, 1994. During 1994 and 1993, Arista paid
$48,054 and $45,000, respectively, and at December 31, 1994 and
1993, $14,410 and $38,000 was accrued under this arrangement.
(Continued)
F-15
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
4. COMMITMENTS AND CONTINGENCIES (Continued)
----------------------------------------
(c) Policy Acquisitions (Continued)
------------------------------
Effective January 1 and April 1, 1994 Arista acquired the
entire book of New York State statutory disability benefit insur-
ance previously written by The North Atlantic Life Insurance
Company of America ("NALIC") and the entire book of New York State
statutory non-experience-rated state cash sickness disability
insurance previously written by Aetna Life Insurance Company
("Aetna"), respectively. NALIC, with whom Arista, through December
31, 1993, had a third party administrative agreement, will receive
a fee based on premiums paid and earned for the period January 1,
1994 through December 31, 1994. During 1994 Arista paid $32,826
and at December 31, 1994, $30,637 was accrued under this arrange-
ment. Aetna will receive a fee based on annualized premiums in
force at March 31, 1994 and on premiums paid and earned for the
period April 1, 1994 through March 31, 1995. During 1994 Arista
paid $527,425 and at December 31, 1994, $212,422 was accrued under
this arrangement.
Effective October 1, 1994, Arista entered into an indem-
nity reinsurance agreement with American Medical and Life Insurance
Company ("American Med") wherein Arista assumed the book of New
York State statutory disability insurance that was ceded by Ameri-
can Med. In addition, effective January 1, 1995, Arista, through
an assumption reinsurance treaty, acquired the book of New York
State statutory disability benefit insurance that had been previ-
ously ceded by American Med. American Med will receive a fee based
on premiums paid which were earned during the year ended September
30, 1994 and on premiums paid which will be earned for the period
January 1, 1995 through June 30, 1996.
(d) Other
-----
(1) Arista is contingently liable with respect to
reinsurance ceded to Harbourton Reinsurance, Inc.
("Harbourton") (previously called NRG American
Life Reinsurance Corp.) in the event Harbourton is
unable to meet the obligations assumed under a
quota share reinsurance agreement (see Note 8).
(2) Effective July 1, 1993, Arista entered into an
agreement to perform certain administrative ser-
vices with The Guardian Life Insurance Company of
America. Fees for the services performed are
determined in accordance with a prescribed sched-
ule based on the type of service provided. The
agreement will remain in effect until terminated
by either party.
(e) Reinsurance
-----------
As discussed in Note 8, the Company is contingently
liable with respect to reinsurance ceded which would become a
liability of the Company in the event of default of the assuming
company.
Effective April 1, 1994 Arista entered into a reinsurance
agreement with Allianz Life Insurance Company of North America
("Allianz") wherein Arista assumed Hawaii temporary disability
insurance business that was ceded by Allianz during 1994.
(Continued)
F-16
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
5. STOCK OPTIONS AND WARRANTS
--------------------------
Transactions involving stock options and warrants in each of
the years ended December 31, 1994, 1993 and 1992 are summarized
below:
<TABLE><CAPTION>
Incentive Non-qualified
Stock Options Stock Options Warrants
--------------------- -------------------- --------------------
Aggregate Aggregate Aggregate
Shares amount(2) Shares amount(2) Shares(1) amount(2)
------- --------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants outstanding:
January 1, 1992 296,400 $ 467,098 17,600 $ 24,640 450,000 $ 919,000
1992 Expired - - - - (85,000) (408,000)
1992 Surrendered (1,000) (2,625) - - - -
------- --------- ------ --------- ------- ---------
December 31, 1994 295,400 $ 464,473 17,600 $ 24,640 365,000 $ 511,000
======= ========= ====== ========= ======= =========
</TABLE>
(1) Warrants to purchase 365,000 shares of Class A Common
Stock at an exercise price of $1.40 per share were grant-
ed to Kooper in 1986. Warrants to purchase 85,000 shares
of Class A Common Stock at an exercise price of $4.80 per
share were granted to the underwriter in connection with
the IPO.
(2) The product of the number of outstanding options and/or
warrants multiplied by the respective exercise prices.
There were no transactions during 1994 and 1993 with respect
to outstanding options and warrants.
1985 Plan
---------
The 1985 Incentive Stock Option Plan (the "1985 Plan")
provides for the grant of options, until May 14, 1995 (as amended),
to purchase up to 200,000 shares of the Company's Class A common
stock by key employees of the Company upon terms and conditions
determined by the Board of Directors of the Company (the "Board").
Such options are exercisable over a five-year period, beginning two
years from the date of grant, subject to certain limited excep-
tions, at a price not less than 100% of the fair market value at
the time the option is granted or, in the case of an incentive
stock option granted to a stockholder owning more than 10% of the
shares of the Company's common stock at a price not less than 110%
of the fair market value at the date of grant. In June 1986, the
1985 Plan was amended to increase the exercise period to ten years
in the case of an incentive stock option granted to a stockholder
owning less than 10% of the Company's common stock, and to permit
the exercise of options at the date of grant.
(Continued)
F-17
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
5. STOCK OPTIONS AND WARRANTS (Continued)
-------------------------------------
1986 Plan
---------
The 1986 Incentive Stock Option Plan (the "1986 Plan")
provides for the grant of options, until June 15, 1996, to purchase
up to 100,000 shares of the Company's Class A common stock. The
1986 Plan is similar in all other respects to the 1985 Plan, as
amended.
Other
-----
During June 1986, the Board granted to Kooper a warrant
to purchase 365,000 shares of Class A common stock at an exercise
price of $1.40 per share, exercisable over a ten-year period ending
June 15, 1996. In connection therewith, a non-qualified stock
option previously granted to Kooper in 1978 was surrendered. Also
in June 1986, the Board granted to Mandel non-qualified options to
purchase 17,600 shares of Class A common stock at an exercise price
of $1.40 per share, exercisable within the ten-year period follow-
ing the date of grant.
IPO
---
Effective February 10, 1987, the Company successfully
completed an initial public offering ("IPO") of 425,000 units (the
"units"), each unit consisting of two shares of Class A common
stock and two redeemable warrants, at an offering price of $8.00
per unit. Each redeemable warrant entitled the holder to purchase
one share of Class A common stock at $5.00 per share, became
exercisable for a two year period commencing February 10, 1988 and
was redeemable by the Company after March 10, 1988 at $0.25 per
warrant under specific conditions. On February 10, 1990, the
warrants expired with no warrants having been exercised or re-
deemed.
In connection with the underwriting, the Company issued
to the underwriter of the IPO nonredeemable five-year warrants (the
"Underwriter's Warrants") to purchase 42,500 units at a price of
$0.001 per unit, exercisable commencing one year from the date of
issuance of the Underwriter's Warrants at an exercise price of
$9.60 per unit. The units had terms and conditions similar to
those offered in the IPO. On February 10, 1992, the warrants
expired with no warrants having been exercised or redeemed.
Commencing June 12, 1987, the Class A common stock and
the redeemable warrants traded separately. The Company registered
977,500 shares of Class A common stock underlying the Class A
common stock redeemable warrants effective May 16, 1988. The
redeemable warrants expired February 10, 1990.
(Continued)
F-18
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
6. STOCKHOLDERS' EQUITY
--------------------
All shares of common stock issued have equal rights and
privileges except that the holder of Class B shares has the added
right to elect a majority of the Board. The Class B common stock
is convertible at the option of the holder at any time, into an
equal number of shares of Class A common stock. All shares of
Class B common stock automatically convert into an equal number of
shares of Class A common stock if Kooper sells, transfers, or in
any manner conveys, one or more shares of Class B common stock, or
upon his death, whichever is earlier.
During November 1987, at a cost of $26,740, the Company
purchased 10,000 shares of Class A common stock which are being
held in treasury.
At both December 31, 1994 and 1993, 678,000 shares of Class
A common stock were reserved for the exercise of the options and
warrants described in Note 5.
In February 1991, the Arista Board authorized the payment of
a dividend to the Company in an amount not to exceed $150,000,
which was paid in March 1991.
In March 1992, the Arista Board authorized the payment of a
dividend to the Company in the amount of $150,000 and rescinded
such authorization in June 1992. In October 1992, as authorized by
the Arista Board, Arista paid a $150,000 dividend to the Company.
In March 1993, the Arista Board authorized and paid a
dividend to the Company in the amount of $198,000.
On March 9, 1994 the Arista Board authorized the payment of
a dividend to the Company in the amount of $215,945 and rescinded
such authorization in 1994. In May 1994, as authorized by the
Arista Board, Arista paid a $224,799 dividend to the Company.
7. INCOME TAXES
------------
As discussed in Note 1, the Company adopted SFAS 109 in 1993
and elected to apply the provisions retroactively to January 1,
1991. Accordingly, beginning with the year ended December 31,
1993, all disclosures are in accordance with the new rules. Under
the provisions of SFAS 109, the Company elected not to restate
prior years' consolidated financial statements as the cumulative
effect of initial adoption in 1991 and all subsequent years was
clearly insignificant.
(Continued)
F-19
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
7. INCOME TAXES (Continued)
-----------------------
Total deferred tax assets of $11,474 and $43,242 and total
deferred tax liabilities aggregating $290,516 and $529,142 at
December 31, 1994 and 1993, respectively, are as follows:
<TABLE><CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Deferred tax assets:
Deferred acquisition costs $ 11,474 $ -
Premiums receivable - (39,672)
Realized investment losses - (3,570)
----------- ----------
Deferred tax assets 11,474 (43,242)
----------- ----------
Deferred tax liabilities:
Investment in securities 80,640 -
Deferred acquisition costs - 61,021
Claims liabilities 125,230 291,271
Intangible assets 84,646 176,850
----------- ----------
Deferred tax liabilities 290,516 529,142
----------- ----------
Net deferred tax liabilities $ 279,042 $ 485,900
=========== ==========
</TABLE>
The following is a reconciliation of the statutory U.S.
Federal income tax rate to the effective tax rate as reflected in
the accompanying consolidated statements of operations:
<TABLE><CAPTION>
1994 1993 1992
-------------------- -------------------- ---------------------
Percentage Percentage Percentage
of pretax of pretax of pretax
Amount income Amount income Amount income
--------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $ (321,087) $ 984,712 $1,395,881
========== ========= ==========
Tax provision at statutory rates $ (109,140) (34.0) $ 334,802 34.0 $ 474,600 34.0
Increase (decrease) in income taxes
resulting from:
NOL carryforward (206,858) (64.4) - - - -
State franchise and local taxes,
net of federal benefit 236,038 73.5 179,242 18.2 222,719 15.9
Other - - 29,156 3.0 1,781 .2
---------- ----- --------- ---- ---------- ----
Income tax provision (benefit) $ (79,960) (24.9) $ 543,200 55.2 $ 699,100 50.1
========== ===== ========= ==== ========== ====
</TABLE>
(Continued)
F-20
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
7. INCOME TAXES (Continued)
-----------------------
The deferred tax provision for the years ended December 31,
1994, 1993 and 1992 arise from the following timing differences:
<TABLE><CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Net business acquisition costs deferred for
financial statement purposes and
expensed currently for tax purposes $ 514,813 $ (18,756) $ (30,275)
Net claims liabilities for statutory or tax
purposes in excess of net claims liabilities
for financial statement purposes 136,295 58,156 (53,147)
Change in recording premiums receivable,
net of offsetting expenses (820,964) 7,356 (7,439)
Net realized investment losses which are
not currently deductible for tax purposes 45,915 62,919 (44,992)
Amortization of intangible assets for
financial statement purposes (82,917) (56,675) 219,753
----------- ---------- ----------
$ (206,858) $ 53,000 $ 83,900
=========== ========== ==========
</TABLE>
The provision for income taxes consists of the following at
December 31, 1994, 1993, and 1992:
<TABLE><CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal $ - $ 218,600 $ 277,747
State and local 126,900 271,600 337,453
----------- ---------- ----------
126,900 490,200 615,200
----------- ---------- ----------
Deferred tax asset:
January 1, 43,242 - -
December 31, 11,476 43,242 -
----------- ---------- ----------
31,766 43,242 -
----------- ---------- ----------
Deferred tax liability:
January 1, 529,142 432,900 349,000
December 31, 290,516 529,142 432,900
----------- ---------- ----------
(238,626) 96,242 83,900
----------- ---------- ----------
Net provision (benefit) $ (79,960) $ 543,200 $ 699,100
=========== ========== ==========
</TABLE>
(Continued)
F-21
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
8. REINSURANCE
-----------
Ceded
-----
Until September 30, 1992, Arista had a quota share
reinsurance agreement (the "Agreement") with Harbourton which
provided for Arista to cede to Harbourton 50% of its policies
written. The Agreement provided for Harbourton to share equally,
above a specified level, in all losses. Commissions and allowances
earned under the Agreement by Arista were increased when Arista's
loss ratio was below a specified level. During 1991 American also
had a similar reinsurance agreement with Harbourton which provided
for American to cede 70% of its premiums written to Harbourton.
Effective October 1, 1992 Arista entered into a stop-loss
reinsurance agreement ("Agreement # 2") with Harbourton which
provided for Arista to cede 50% of its disability policies when its
loss ratio was equal to or greater than 75% up to but not exceeding
100% of earned premiums. Harbourton was paid a fee based on earned
premiums. The statement of operations for the years ended December
31, 1992 and 1993 reflect Agreement # 2 for the period October 1,
1992 through December 31, 1992 and January 1, 1993 through Septem-
ber 30, 1993, respectively.
Effective October 1, 1993, Arista entered into a new
agreement (Agreement # 3) with Harbourton whereby Arista will cede
by way of reinsurance, a 50% quota share of Arista's liability with
respect to New York state disability benefits issued to policyhold-
ers. For this Harbourton will receive a fee based on premiums
ceded.
Ceded transactions at December 31, 1994 were as follows:
<TABLE><CAPTION>
Gross Ceded Net
Amount Amount Amount
------------ ------------ ------------
<S> <C> <C> <C>
Premium receivable $ 6,328,500 $ 3,164,250 $ 3,164,250
Claims liabilities $ 4,921,446 $ 2,460,723 $ 2,460,723
Unearned premiums $ 1,358,365 $ 679,182 $ 679,183
</TABLE>
A contingent liability exists with respect to reinsurance
ceded which would become a liability of Arista in the event that
Harbourton is unable to meet the obligations assumed under Agree-
ment # 3.
(Continued)
F-22
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
9. NET INVESTMENT INCOME
---------------------
Net unrealized gain on investments for the years ended 1994,
1993 and 1992 were as follows:
<TABLE><CAPTION>
Source 1994 1993 1992
----------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Amount currently recognized as unrealized
gain (loss):
Bonds and long-term investments $ - $ - $ (45,000)
Equity securities - - -
Redeemable preferred stocks (15,415) 16,805 45,498
----------- ---------- ----------
(15,415) 16,805 498
----------- ---------- ----------
Amount previously recognized as unrealized
loss now recognized as realized loss:
Redeemable preferred stocks - 54,733 55,373
Bonds and long-term investments - 45,000 -
----------- ---------- ----------
- 99,733 55,373
----------- ---------- ----------
Net unrealized gain $ (15,415) $ 116,538 $ 55,871
=========== ========== ==========
</TABLE>
Arista maintains a custodial investment account pursuant to
the requirements of the NYSID. These investments have been
included with bonds and long-term U.S. Treasury obligations. At
December 31, 1994 and 1993 the total amortized cost and market
value of the investments in this account were as follows:
<TABLE><CAPTION>
1994 1993
---------------------------- ----------------------------
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Type of Security:
U.S. Treasuries $ 341,736 $ 313,399 $ 344,251 $ 348,899
============ ============ ============ ============
</TABLE>
The following schedule reflects the respective maturity
dates, as at December 31, 1994:
Amortized Market
Cost Value
-------- --------
Maturity Dates:
1995 $ - $ -
1996-2000 125,073 118,555
2001-2005 216,663 194,844
Subsequent to 2005 - -
(Continued)
F-23
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
9. NET INVESTMENT INCOME (Continued)
--------------------------------
American also maintains a custodial account pursuant to the
requirements of the NYSID. At December 31, 1993, such custodial
account, which has been included with short-term investments,
consisted of a $225,000 face value U.S. Treasury Bill (cost $225,703,
market value $225,406) which matured in August 1994. At
December 31, 1994 American also maintained a $229,781 non-interest
bearing cash account, which is included in cash and equivalents.
Net investment income of the Company for the years ended
1994, 1993 and 1992 consists of the following:
<TABLE><CAPTION>
Source 1994 1993 1992
------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Interest and dividends:
Bonds and long-term investments $ 174,707 $ 147,538 $ 143,328
Short-term investments 40,773 40,662 91,483
----------- ----------- -----------
Total interest and dividends 215,480 188,200 234,811
Net realized investment gains (losses) (2,342) 47,142 (107,530)
----------- ----------- -----------
$ 213,138 $ 235,342 $ 127,281
=========== =========== ===========
</TABLE>
The following schedule reflects the respective amortized
costs, market values, gross unrealized gains or losses and maturity
dates of investment securities, as applicable, as at December 31,
1994:
<TABLE><CAPTION>
Amortized Market Unrealized
Cost Value Gain (Loss)
----------- ------------ ----------
<S> <C> <C> <C>
Type of security:
Equity security $ 3 $ 1,018 $ (1,015)
U.S. Treasuries 2,875,077 2,606,546 (268,531)
Other debt 143,581 113,303 (30,278)
----------- ------------ ------------
$ 3,018,661 $ 2,720,867 $ (297,794)
=========== ============ ============
Maturity dates:
1995 $ 207,818 $ 207,818
1996-2000 1,307,466 1,183,622
2001-2005 818,136 727,996
Subsequent to 2005 685,241 601,431
----------- ------------
$ 3,018,661 $ 2,720,867
=========== ============
</TABLE>
(Continued)
F-24
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
10. STATUTORY MATTERS
-----------------
Arista
------
The following summaries reconcile net stockholder's
equity and net income (loss) of Arista on the SAP basis with the
amount of such equity and net income included in the financial
statements of Arista on a GAAP basis for the years ended December
31, 1994, 1993, and 1992:
<TABLE><CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Capital and surplus reported for statutory purposes $ 3,651,842 $ 4,139,450 $ 3,481,279
Add (deduct):
Inclusion of nonadmitted assets 1,430,554 1,008,979 933,348
Deferred costs, net of tax 194,776 149,340 179,845
Claims reserves, net of tax 433,848 421,819 334,675
Intangible assets, net 616,168 631,593 716,518
Unrealized depreciation on marketable securities (30,278) (14,863) (131,401)
Other 209,094 190,319 85,542
Adjustment to fair value of net assets acquired - (119,631) (119,631)
Adjustment to premiums receivable, net of tax (110,841) (46,492) (57,514)
Prior period tax over accrual (279,000) (279,000) -
Asset valuation reserve - - 11,787
Realized gain on investments, net of tax (24,998) (29,054) (29,894)
------------ ------------ ------------
Stockholders' equity reported in
Arista's financial statements $ 6,091,165 $ 6,052,460 $ 5,404,554
============ ============ ============
Net income reported for statutory purposes $ 159,502 $ 917,718 $ 1,103,682
Add (deduct):
Deferred costs, net of tax 45,436 (28,105) (44,410)
Other (8,098) (174,325) 69,734
Claims reserves, net of tax 12,029 87,144 (87,326)
Adjustment to premiums receivable, net of tax (64,349) 11,022 (10,340)
Realized loss on investments, net of tax 4,055 840 (29,894)
Amortization of intangible asset, net of tax (7,318) (84,924) (82,353)
Income tax expense differences 137,660 - -
------------ ------------ ------------
Net income reported in Arista's
financial statements $ 278,917 $ 729,370 $ 919,093
============ ============ ============
</TABLE>
(Continued)
F-25
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
10. STATUTORY MATTERS (Continued)
----------------------------
Arista was in compliance with the NYSID minimum statutory
capital and surplus requirement of $300,000 at December 31, 1994,
1993 and 1992. American was also in compliance with such require-
ment at December 31, 1994, 1993 and 1992.
Under the New York State Insurance Law, Arista may pay
dividends to the Company only out of its statutory earned surplus.
In addition, the maximum amount of dividends that may be paid in
any twelve-month period without regulatory approval is the lesser
of adjusted net investment income or 10% of its surplus. At
December 1994 Arista could not pay a dividend to the Company. At
December 31, 1993, the amount available for payment could not
exceed $215,945. At December 31, 1993 and 1992 the dividend
American could pay to Arista was de minimis.
The report on examination of Arista by the NYSID as of
December 31, 1989 was completed and filed during 1992. The exami-
nation concluded that the statutory surplus at December 31, 1989 as
regards to policyholders was overstated by approximately $600,000.
This was predominately due to an overestimation of the premiums
receivable, which was corrected during 1990.
In accordance with the request from the NYSID, Arista
showed no reinsurance ceded for statutory purposes for the year
ended December 31, 1992.
11. BUSINESS ACQUISITION
--------------------
Stock Purchase Agreement
------------------------
On December 31, 1991, Arista entered into an agreement to
acquire all the outstanding shares of American Accident and Health
Insurance Company. In December 1991 the NYSID approved the assump-
tion of American's disability business by Arista and approved the
acquisition of American in April 1992. The acquisition has been
accounted for as a purchase. The purchase price was originally to
consist of: (1) a $175,000 cash payment; (2) a credit against the
purchase price of $898,973, which represents American's statutory
negative capital and surplus balance as at December 31, 1991; and
(3) an amount equal to 7-1/2% of earned premiums, as defined, on
American policies renewed or rewritten during the period commencing
January 1, 1992 and ending December 31, 1993.
Arista had the right to make certain adjustments to the
purchase price for various income and expense items as mutually
agreed upon. All payments due under the agreement were to be held
in escrow until the final purchase price was determined, prior to
October 15, 1994. Due to a shortfall in earned premiums and
certain agreed-upon adjustments to the purchase price no payments
are due American. Expenses incurred by the Company in connection
therewith have been capitalized as part of the purchase price.
(Continued)
F-26
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
11. BUSINESS ACQUISITION (Continued)
-------------------------------
Intangible Assets
-----------------
Under the purchase method of accounting, the allocation
of the purchase price to the fair value of American's assets and
liabilities is required. Such allocation was finalized in 1994
when the purchase price was finally determined. The excess of fair
value of net assets acquired over the purchase price of $216,740
was allocated to reduce intangible assets. At December 31, 1994
and 1993, accumulated amortization relating to intangible assets
was $373,434 and $283,200, respectively, while the amortization
expense was $189,865 in 1994 and $141,600 in 1993.
12. MAJOR CUSTOMERS
---------------
For the years ended December 31, 1994 and 1993 no customer
accounted for 10.0% or more of total gross premiums earned.
Premiums earned from a major customer accounted for approximately
10.0% of total gross premiums earned for the year ended December
31, 1992. Another customer accounted for approximately 11.3% of
gross premiums earned for the year ended December 31, 1992.
13. SUBSEQUENT EVENTS
-----------------
Effective January 1, 1995 Arista entered into an agreement
with American Med to acquire its book of New York Statutory Dis-
ability Insurance. The agreement provides that effective January
1, 1995, Arista will assume American Med's New York Statutory
Disability business and will issue assumption certificates to the
policyholders currently insured with American Med. American Med
will receive a fee based on premiums paid which were earned during
the year ended September 30, 1994 and on premiums paid which will
be earned for the period January 1, 1995 through June 30, 1996.
The acquisition will be accounted for under the purchase method of
accounting.
Effective January 1, 1995, Arista entered into an agreement
to perform certain administrative services for the United States
Life Insurance Company in the City of New York, a company in the
business of writing Statutory Disability Benefits Insurance. Fees
for the services performed are determined in accordance with a
prescribed schedule based on the type of service provided. The
agreement will remain in effect until terminated by either party.
F-27
<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1994
Amount
Cost or shown in
amortized Market the balance
Type of Investment cost value sheet
------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Investment securities:
Bonds:
United States Government and government
agencies and authorities $ 2,667,259 $ 2,398,728 $ 2,667,259
Short-term investments 207,818 207,818 207,818
------------ ------------ ------------
Total 2,875,077 2,606,546 2,875,077
Available for sale:
Redeemable preferred stocks 143,581 113,304 113,304
Trading security:
Common stock 3 1,018 1,018
------------ ------------ ------------
$ 3,018,661 $ 2,720,868 $ 2,989,399
============ ============ ============
</TABLE>
S-1
<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
BALANCE SHEETS
December 31,
-----------------------------
1994 1993
------------ ------------
A S S E T S
-----------
<S> <C> <C>
Investment in subsidiaries $ 6,092,271 $ 6,051,207
Investments 207,818 -
Cash and equivalents 260,745 358,476
Prepaid expenses and other assets 344,892 159,047
------------ ------------
Total assets $ 6,905,726 $ 6,568,730
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses $ 315,206 $ 30,628
Due to subsidiaries, net 563,884 270,337
------------ ------------
Total liabilities 879,090 300,965
Stockholders' equity 6,026,636 6,267,765
------------ ------------
Total liabilities and stockholders' equity $ 6,905,726 $ 6,568,730
============ ============
</TABLE>
<TABLE><CAPTION>
STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Investment income $ 12,814 $ 11,629 $ 12,877
Corporate and administrative expenses 737,580 406,979 337,582
------------ ------------ ------------
Loss from operations before income tax
benefits and equity in net income of
subsidiaries (724,766) (395,350) (324,705)
Income tax benefits (204,720) (127,202) (87,076)
------------ ------------ ------------
Loss from operations before equity in
net income of subsidiaries (520,046) (268,148) (237,629)
Equity in net income of subsidiaries 278,917 709,660 934,410
------------ ------------ ------------
Net income (loss) $ (241,129) $ 441,512 $ 696,781
============ ============ ============
</TABLE>
The accompanying condensed financial information should be read in
conjunction with the consolidated financial statements and notes
thereto of Arista Investors Corp. at December 31, 1994 and 1993 and
for each of the three years in the period ended December 31, 1994.
S-2
<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
(Continued)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (241,129) $ 441,512 $ 696,781
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 450 - -
Equity in net income of subsidiaries (278,917) (709,660) (934,410)
Increase (decrease) in assets and liabilities:
Due to subsidiaries 293,547 13,892 104,174
Prepaid expenses and other assets (185,845) (21,340) 107,548
Accounts payable and accrued expenses 284,578 21,834 (93,099)
------------ ------------ ------------
Net cash used in operating activities (127,316) (253,762) (119,006)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of investments, net (207,818) - -
Proceeds from sale 12,604 - -
Dividend from subsidiary 224,799 198,000 150,000
------------ ------------ ------------
Net cash provided by investing activities 29,585 198,000 150,000
------------ ------------ ------------
Increase (decrease) in cash
and equivalents (97,731) (55,762) 30,994
Cash and equivalents:
Beginning of year 358,476 414,238 383,244
------------ ------------ ------------
End of year $ 260,745 $ 358,476 $ 414,238
============ ============ ============
</TABLE>
The accompanying condensed financial information should be read in
conjunction with the consolidated financial statements and notes
thereto of Arista Investors Corp. at December 31, 1994 and 1993 and
for each of the three years in the period ended December 31, 1994.
S-3
<PAGE>
ARISTA INVESTORS CORP.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
(Continued)
NOTES TO CONDENSED FINANCIAL INFORMATION
DECEMBER 31, 1994 AND 1993
1. Basis of Presentation
Pursuant to the rules and regulations of the Securities and
Exchange Commission, the Condensed Financial Information of the
Registrant does not include all of the information and notes
normally included with financial statements prepared in accor-
dance with generally accepted accounting principles. It is
therefore suggested that these condensed financial statements be
read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Annual Report as
referenced in Form 10-K, Part II, Item 8, pages F-1 - F-27.
2. Cash Dividends from Subsidiary
The following dividends were paid to the Company by its subsid-
iary, Arista Insurance
Company:
May 1994 $224,799
========
March 1993 $198,000
========
October 1992 $150,000
========
S-4
