FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 2-8381-NY
ARISTA INVESTORS CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2957684
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
116 John Street, New York, N.Y. 10038
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)964-2150
-------------
Indicate by check mark whether the registrant 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 number of Registrant's outstanding shares on
November 13, 1995 was 1,930,600 Class A Common Stock, $0.01
par value and 47,400 Class B Common Stock, $0.01 par value.
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<PAGE>
ARISTA INVESTORS CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 3
1995 (Unaudited) and December 31, 1994
Consolidated Statements of Operations 5
(Unaudited) for the three months and nine
months ended September 30, 1995 and 1994
Consolidated Statements of Changes in Stock- 6
holders' Equity for the nine months ended
September 30, 1995 (Unaudited) and the
year ended December 31, 1994
Consolidated Statements of Cash Flows 7
(Unaudited) for the nine months ended Sep-
tember 30, 1995 and 1994
Notes to Consolidated Financial Statements 8
(Unaudited)
Item 2. MD&A:
Management's Discussion and Analysis of 11
Financial Condition and Results of Opera-
tions
PART II. OTHER INFORMATION
Item 1 through Item 6 14
Signatures 16
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<PAGE>
PART I. FINANCIAL INFORMATION
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
ASSETS
------
Investments:
Held to maturity:
Bonds and long-term U. S. Treasury
obligations at amortized cost (market
value - $2,617,275 at September 30, 1995
and $2,490,986 at December 31, 1994) $2,658,019 $2,667,259
Short-term U. S. Treasury, at amortized cost
obligations (market value $336,982 at
September 30, 1995 and $207,818 at December
31, 1994) 336,982 207,818
Trading security, at market (cost of $3
at September 30, 1995 and December 31, 1994) 1,018 1,018
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $141,345 at September 30,
1995 and $143,581 at December 31, 1994) 121,963 113,304
-------------- ------------
Total investments 3,117,982 2,989,399
Cash and equivalents 2,734,214 2,724,864
Premiums receivable, net 2,479,500 3,164,250
Deferred policy acquisition costs, net 1,042,513 794,988
Intangible assets, net 291,693 385,053
Furniture and office equipment, at cost, net 193,540 120,642
Prepaid and refundable income taxes 925,848 817,289
Other assets 961,289 922,550
------------- ------------
$11,746,579 $11,919,035
============= ============
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Payable to reinsurers $ 120,112 $ 80,393
Net claims liabilities 2,276,503 2,460,723
Net unearned premiums 746,740 679,183
Net commissions payable 1,392,668 1,319,211
Accounts payable and accrued expenses 891,318 1,089,262
Deferred income taxes 269,273 279,042
------------- ------------
Total liabilities 5,696,614 5,907,814
------------- ------------
Commitments and contingencies: (Note 2)
Stockholders' equity:
Class A common stock, $.01 par value;
9,950,000 shares authorized; 1,940,600 issue 19,406 19,406
Common stock, Class B, $.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 1,882,852 1,855,005
Net unrealized loss on marketable securities (19,381) (30,278)
------------- ------------
6,076,705 6,037,961
Less 10,000 shares Class A common stock in
treasury, at cost (26,740) (26,740)
------------- ------------
Total stockholders' equity 6,049,965 6,011,221
------------- ------------
$11,746,579 $11,919,035
============= ============
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE><CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- ------------------------
1995 1994 1995 1994
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Gross premiums earned (Note 2) $6,274,927 $7,050,056 $19,345,480 $20,068,572
Ceded premiums earned (Note 2) 3,137,464 3,525,028 9,672,740 10,034,286
------------- ------------ ----------- -----------
Net premiums earned 3,137,463 3,525,028 9,672,740 10,034,286
Net realized investment gains (losses) - - (137) (2,342)
Investment income 79,507 55,549 187,552 160,417
Other income 52,279 14,258 179,841 109,861
------------- ------------ ----------- -----------
Total revenue 3,269,249 3,594,835 10,039,996 10,302,222
------------- ------------ ----------- -----------
Expenses:
Underwriting (Note 2):
Gross claims incurred 4,135,514 4,032,594 12,620,834 12,649,150
Ceded claims incurred 2,067,757 2,016,297 6,310,417 6,324,575
----------- ----------- ------------ -----------
Net claims incurred 2,067,757 2,016,297 6,310,417 6,324,575
----------- ----------- ------------ -----------
Gross commissions incurred 1,156,028 1,262,539 3,332,133 3,195,384
Ceded commissions incurred 1,006,957 1,433,032 3,168,867 3,501,290
----------- ----------- ------------ -----------
Net commissions incurred (earned) 149,071 (170,493) 163,266 (305,906)
----------- ----------- ------------ -----------
Total underwriting expenses 2,216,828 1,845,804 6,473,683 6,018,669
General and administrative expenses 1,148,691 1,139,972 3,496,096 3,416,584
----------- ----------- ------------ -----------
Total expenses 3,365,519 2,985,776 9,969,779 9,435,253
----------- ----------- ------------ -----------
Income (loss) before provision (benefit) (96,270) 609,059 70,217 866,969
for income taxes
Provision (benefit) for income taxes (48,362) 297,680 42,370 431,950
----------- ----------- ------------ -----------
Net income (loss) (47,908) 311,379 27,847 435,019
=========== =========== ============ ===========
Net income (loss) per common share ($0.02) $0.14 0.01 0.20
=========== =========== ============ ===========
Weighted average number of common
shares outstanding 2,265,923 2,263,993 2,302,459 2,229,900
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
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<PAGE>
<TABLE><CAPTION>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended September 30, 1995 (unaudited) and year ended December 31, 1994
Class A Class B
Common Stock Common Stock
---------------- -----------------
Number Par Number Par
of value of value Paid-in Retained
Shares $.01 Shares $.01 capital earnings
-------- -------- ------ ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1994 1,940,600 $19,406 47,400 $474 $4,193,354 $2,096,134
Net loss - - - - - (241,129)
Net investment losses - - - - - -
--------- --------- --------- ------- ------------ ------------
Balance - December 31, 1994 1,940,600 19,406 47,400 474 4,193,354 1,855,005
Net income (unaudited) - - - - - 27,847
Net investment gains (unaudited) - - - - - -
--------- --------- --------- ------- ------------ ------------
Balance - September 30, 1995 (unaudited) 1,940,600 $19,406 47,400 $474 $4,193,354 $1,882,852
========= ========= ========== ======= ============ ============
<CAPTION>
Cost of
Class A
Unrealized Common
depreciation Stock Total
of equity held in stockholder
securities treasury equity
-------------- ---------- -----------
<S> <C> <C> <C>
Balance - January 1, 1994 ($14,863) ($26,740) $6,267,765
Net loss - - (241,129)
Net investment losses (15,415) - (15,415)
-------------- ---------- -----------
Balance - December 31, 1994 (30,278) (26,740) 6,011,221
Net income (unaudited) - - 27,847
Net investment gains (unaudited) 10,897 - 10,897
------------ ---------- ------------
Balance - September 30, 1995 (unaudited) ($19,081) ($26,740) $6,049,965
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1995 and 1994
(Unaudited)
<TABLE><CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $27,847 $435,019
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 39,834 49,600
Amortization of intangible assets 93,360 106,200
Deferred acquisition costs (473,304) (1,195,731)
Deferred income taxes/(benefit) (9,769) 15,450
(Increase) decrease in operating assets:
Premiums receivable 684,750 (256,250)
Deferred policy acquisition costs 225,779 182,503
Prepaid and refundable income taxes (108,559) 143,703
Other assets (38,739) (141,274)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (197,944) 118,456
Payable to reinsurer 39,719 12,651
Net claims liabilities (184,220) (97,712)
Net unearned premiums 67,557 102,290
Commissions payable 73,457 218,225
Income taxes payable - -
----------- ----------
Net cash provided by (used in) operating activities 239,768 (306,870)
----------- ----------
Cash flows from investing activities:
Capital expenditures (112,732) (29,801)
Proceeds from sale of investments 219,297 1,003,470
Purchases of investments (336,983) (751,798)
----------- ----------
Net cash provided by (used in) investing activities (230,418) 221,871
Cash flows from financing activities - -
----------- ----------
Net increase (decrease) in cash and equivalents 9,350 (84,999)
Cash and equivalents at beginning of the period 2,724,864 2,354,897
----------- ----------
Cash and equivalents at end of nine months $2,734,214 $2,269,898
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(Unaudited)
Note 1 - Basis of presentation
- ------------------------------
The accompanying consolidated financial statements are prepared on the basis of
generally accepted accounting principles("GAAP"). GAAP differs from statutory
accounting principles ("SAP") used by insurance companies in reporting to state
regulatory agencies. In the opinion of the management of Arista Investors Corp.
(the "Company" or the "Registrant"), all adjustments (consisting of normal
recurring accruals only) have been reflected for a fair presentation of the
unaudited financial position as of September 30, 1995 and results of operations
for the nine-month and three-month periods ended September 30, 1995 and 1994.
The operating results for the periods are not necessarily indicative of the
results to be expected for the entire year.
Note 2 - Reinsurance
- --------------------
Effective October 1, 1992, Arista Insurance Company ("Arista") entered into a
stop-loss reinsurance agreement ("Agreement") with its reinsurer. The Agreement
provides for Arista to cede 50% of its disability policies written when Arista's
loss ratio is equal to or greater than 75%, up to but not to exceed 100% of
earned premiums. The reinsurer is paid a fee based on Arista's earned premiums.
The Agreement is subject to cancellation by either party on 90 days' prior
written notice.
Effective October 1, 1993, Arista entered into a new agreement with NRG America
Reassurance Corporation (during 1994, its name was changed to Harbourton
Reinsurance, Inc., "Harbourton") whereby Arista will cede, by way of
reinsurance, a 50% quota share of Arista's liability with respect to New York
Statutory Disability benefits issued to policyholders. For this, Harbourton will
receive a fee based on premiums ceded.
A contingent liability exists with respect to reinsurance ceded which would
become a liability of Arista in the event that the reinsurer is unable to meet
its proportionate share of the obligations assumed under the Agreement.
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<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(unaudited)
Effective April 1, 1994, Arista entered into a reinsurance agreement with
Allianz Life Insurance Company of North America ("Allianz"), whereby Allianz
would cede to Arista 100% of Allianz's gross liability with respect to Hawaii
Temporary Disability Insurance benefits issued to policyholders.
Note 3 - Related parties
- ------------------------
Bernard Kooper, President of the Company, Chairman of the Boards of Directors of
the Company and Arista and a Director of The Collection Group, Inc. and American
Accident and Health Insurance Company (both inactive entities), beneficially
owns 22.88% and 100% of the outstanding shares of Class A and Class B Common
Stock, respectively (including 30,400 shares of Class A Common Stock owned by
Arlyne Kooper, wife of Bernard Kooper, and 365,000 shares of Class A Common
Stock issuable upon the exercise of the warrants held by Mr. Kooper). Bernard
Kooper Life Agency, Inc. (the "Agency"), one of the general agents of Arista
received approximately $169,000 and $187,000 in commissions from Arista during
the nine months ended September 30, 1995 and 1994, respectively. Of this
amount, the Agency paid approximately $121,00 and $135,000 during the nine
months ended September 30, 1995 and 1994, respectively, to brokers, which
included certain members of the Board of Directors of the Company and Arista.
The amount paid to members of the Board of Directors of the Company and/or
Arista by the Agency was approximately $17,000 and $16,000 during the nine
months ended September 30, 1995 and 1994, respectively. Commissions payable to
the Agency at September 30, 1995 and 1994 were $9,567 and $13,937, respectively.
Note 4 - Consolidated income taxes
- ----------------------------------
Consolidated income taxes paid aggregated $394,256 and $394,396 for the nine
months ended September 30, 1995 and 1994, respectively.
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<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(unaudited)
Note 5 - Policy acquisitions
- ----------------------------
Arista has incurred costs under various agreements to acquire the right to offer
New York State Statutory Disability Benefits Insurance to former policyholders
of other disability carriers. These costs include fees paid directly to these
disability carriers for such right. For financial statement purposes, such
costs are deferred and are being amortized to income over five years. These
costs, for all acquisitions, amounted to $2,153,202 and $1,603,924 at September
30, 1995 and 1994, respectively. Accumulated amortization was $1,110,690 and
$800,581 at September 30, 1995 and 1994, respectively.
Amortization of deferred acquisition costs charged to operations aggregated
$225,778 and $182,503 for the nine months ended September 30, 1995 and 1994,
respectively.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1995
(Unaudited)
Results of Operations
- ---------------------
The Company's net income after taxes for the nine months of 1995 and 1994 were
approximately $28,000 and $435,000, respectively. For the third quarter ended
September 30, 1995, the Company had an after tax loss of approximately $48,000
as compared to net income of approximately $311,000 for the same period of 1994.
Income before provision for income taxes for the first nine months of 1995 was
approximately $70,000 as compared to $867,000 for the comparable period of
1994.
The principal reasons for the decrease in income from operations for the nine
months of 1995 as compared to 1994 were a reduction in gross premiums earned and
a 2.2% increase in the loss ratio.
Arista's gross premiums earned were approximately $19.3 million and $20.1
million for the first nine months of 1995 and 1994, respectively. Gross
premiums earned for the third quarters of 1995 and 1994 were approximately $6.3
million and $7.1 million, repectively. Under an Assumption Reinsurance Treaty
with American Medical and Life Insurance Company ("American Med"), effective
January 1, 1995, Arista acquired the book of New York Statutory Disability
Benefits Insurance that had been previously ceded by American Med to Arista
(effective October 1, 1994). This book of disability insurance increased gross
premiums earned by approximately $2.0 million for the first nine months of 1995.
This increase was offset by a reduction in premiums earned on Arista's
existing book of disability insurance, which was attributable to a reduction in
the number of covered lives as well as in the number of policyholders covered.
Arista's gross premiums earned for the first nine months of 1995 reflects a
continuation of the loss of covered lives and policyholders as recorded in the
fourth quarter of 1994. Because premiums on New York State Statutory Disability
Benefits Insurance are principally collected quarterly in arrears, there is lag
time between the fiscal period and the actual receipt of premiums. Therefore,
Arista must estimate and then accrue the amount of premiums earned during any
fiscal period. During the
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
(Unaudited)
first quarter of 1995, it had become apparent that Arista's estimate of premiums
receivable, especially associated with the acquisitions completed in 1994, were
higher than the premiums realized. Thus, a lower estimate was required at year
end of 1994 to give effect to lower premiums expected to be earned.
Arista's gross claims incurred for the first nine months of 1995 and 1994 were
each approximately $12.6 million, representing 65.2% and 63.0%, respectively, of
the gross premiums earned. For the third quarters of 1995 and 1994, the ratios
were 65.9% and 57.2%, respectively. As reported at June 30, 1995, the ratios
were 57.8% and 66.6% for the second quarters of 1995 and 1994, respectively. It
is not possible for management to predict whether or not such short-range
quarterly changes in the gross claims incurred are indicative of any trend.
Consolidated investment income for the first nine months of 1995 and 1994 were
approximately $188,000 and $160,000, respectively. For the third quarters of
1995 and 1994, consolidated investment income was approximately $80,000 and
$56,000 respectively. The principal reason for this change was the increase
in the amount of consolidated short-term investments in 1995.
Other income for the first nine months of 1995 and 1994 were approximately
$180,000 and $109,000, respectively. For the third quarter of 1995 and 1994,
other income was approximately $52,000 and $14,000. The change in the third
quarter of 1995 as compared to 1994 was attributable to increased third party
administrative fees.
Arista's gross commissions incurred were approximately $3.3 million and $3.2
million for the first nine months of 1995 and 1994, respectively. As a
percentage of gross premiums earned, the gross commissions incurred were 16.7%
and 14.9% for the first nine months of 1995 and 1994, respectively. In
addition, gross commissions incurred were approximately $1.2 million and
$1.3 million for the third quarters of 1995 and 1994,
respectively.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1995
(Unaudited)
The consolidated general and administrative expenses for the first nine months
of 1995 and 1994 were approximately $3.5 million and $3.4 million,
respectively. As a percentage of gross premiums earned, the consolidated
general and administrative expenses were 18.1% and 17.0% for the nine months
ended September 30, 1995 and 1994, respectively. For the third quarters of
1995 and 1994, these expenses were both approximately $1.1 million.
Liquidity and Capital Resources
Retained earnings increased from $6,011,221 at December 31, 1994 to $6,049,965
at September 30, 1995 as a result of the Company's additional net income.
Management continues to believe that a further increase in statutory surplus
would be necessary for any appreciable increase in net in-force premiums.
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<PAGE>
ARISTA INVESTORS CORP.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to report.
Item 2. Changes in Securities
Nothing to report.
Item 3. Defaults Upon Senior Securities
Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to report.
Item 5. Other Information
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K: None
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<PAGE>
SIGNATURES
Pursuant to the requirements 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. (Registrant)
-----------------------------------
BY: /s/ BERNARD KOOPER
-----------------------------------
BERNARD KOOPER, President and
Chairman of the Board (principal
executive officer)
BY: /s/ SUSAN J. HALL
------------------------------------
SUSAN J. HALL, Senior Vice President
and Treasurer (principal financial
and accounting officer)
November 13, 1995
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,734,214
<SECURITIES> 122,981
<RECEIVABLES> 2,479,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,553,039
<PP&E> 193,540
<DEPRECIATION> 644,065
<TOTAL-ASSETS> 11,746,579
<CURRENT-LIABILITIES> 2,276,503
<BONDS> 0
<COMMON> 19,880
0
0
<OTHER-SE> 6,030,085
<TOTAL-LIABILITY-AND-EQUITY> 11,746,579
<SALES> 9,672,740
<TOTAL-REVENUES> 10,039,996
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,659,362
<LOSS-PROVISION> 6,310,417
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,217
<INCOME-TAX> 42,370
<INCOME-CONTINUING> 27,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,847
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
