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 March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to __________
Commission File No. 2-8381
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 forthe past 90 days. Yes X No____
The aggregate number of Registrant's outstanding shares on May 15, 1996 was
1,930,600 Class A Common Stock, $0.01 par value (excluding 10,000 shares of
treasury stock) 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 March 31, 3
1996 (Unaudited) and December 31, 1995
Consolidated Statements of Operations 5
(Unaudited) for the three months ended March
31, 1996 and 1995
Consolidated Statements of Changes in Stock- 6
holders' Equity for the three months ended
March 31, 1996 (Unaudited) and the year
ended December 31, 1995
Consolidated Statements of Cash Flows 7
(Unaudited) for the three months ended
March 31, 1996 and 1995
Notes to Consolidated Financial Statements 8
(Unaudited)
Item 2. MD&A:
Management's Discussion and Analysis of 10
Financial Condition and Results of Opera-
tions
PART II. OTHER INFORMATION
Item 1 through Item 6 12
Signatures 13
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
----------- -----------
(unaudited)
ASSETS
------
Investments:
Held-to-maturity securities:
Bonds and long-term U. S. Treasury
obligations at amortized cost (market
value - $2,726,490 at March 31, 1996
and $2,692,276 at December 31, 1995) $ 2,705,635 $ 2,654,939
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $84,149 at March 31,
1996 and $141,344 at December 31, 1995) 81,317 129,502
Trading security, at market value (cost of $1,279
at March 31, 1996 and December 31, 1995) 337 660
----------- -----------
Total investments 2,787,289 2,785,101
Cash and equivalents 7,168,786 6,777,328
Premiums receivable, net 2,375,700 2,565,853
Deferred policy acquisition costs, net 996,279 1,060,381
Furniture and equipment, at cost, net of
accumulated depreciation of $680,675 at March
31, 1996 and $661,552 at December 31, 1995 174,426 193,549
Prepaid and refundable income taxes 825,940 765,877
Other assets 1,049,126 926,114
----------- -----------
Total Assets $15,377,546 $15,074,203
=========== ===========
(Continued)
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Payable to reinsurers $ 125,227 $ 161,476
Net claims liabilities 2,203,252 2,263,158
Net unearned premiums 774,610 664,105
Net commissions payable 1,633,224 1,303,888
Accounts payable and accrued expenses 988,686 772,969
Deferred income taxes, net 534,927 622,427
Surplus note payable, net 2,853,750 2,850,000
------------ ------------
Total liabilities 9,113,676 8,638,023
------------ ------------
Commitments and contingencies: (Note 2)
Stockholders' equity:
Class A common stock, $.01 par value;
9,950,000 shares authorized; 1,940,600
shares issued 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
Paid-in capital attributed to detachable warrant 150,000 150,000
Retained earnings 1,930,531 2,111,528
Net unrealized loss on investment securities (3,155) (11,842)
------------ ------------
6,290,610 6,462,920
Less 10,000 shares Class A common stock in
treasury, at cost (26,740) (26,740)
------------ ------------
Total Stockholders' Equity 6,263,870 6,436,180
------------ ------------
Total Liabilites w/Stockholders' Equity $ 15,377,546 $ 15,074,203
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
--------- ---------
Revenue:
Gross premiums earned (Note 2) $5,944,020 $6,549,478
Ceded premiums earned (Note 2) 2,972,010 3,274,739
--------- ---------
Net premiums earned 2,972,010 3,274,739
Net realized investment losses (208) (137)
Investment income 91,784 56,376
Other income 65,508 44,678
--------- ---------
Total revenue 3,129,094 3,375,656
Expenses:
Underwriting:
Gross claims incurred (Note 2) 3,964,957 4,714,346
Ceded claims incurred (Note 2) 1,982,478 2,357,173
--------- ---------
Net claims incurred 1,982,479 2,357,173
--------- ---------
Gross commissions incurred (Note 2) 1,097,663 1,106,231
Ceded commissions incurred (Note 2) 892,941 852,069
--------- ---------
Net commissions incurred (Note 2) 204,722 254,162
--------- ---------
Total underwriting expenses 2,187,201 2,611,335
General and administrative expenses 1,173,290 1,191,570
--------- ---------
Total expenses 3,360,491 3,802,905
--------- ---------
Loss before income tax benefits (231,397) (427,249)
Provision for income tax benefits (50,400) (127,958)
--------- ---------
Net loss ($180,997) ($299,291)
========= =========
Net loss per common share ($0.08) ($0.13)
========= =========
Weighted average number of common
shares outstanding 2,211,900 2,328,951
========= =========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended March 31, 1996 (unaudited) and year ended December 31,
1995
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
--------------------------- ---------------------------
Number Par Number Par Additional
of value of value Paid-in
Shares $.01 Shares $.01 capital
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 1,940,600 $ 19,406 47,400 $ 474 $4,193,354
Net gain -- -- -- -- --
Net investment gains -- -- -- -- --
Issuance of surplus note -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance - December 31, 1995 1,940,600 19,406 47,400 474
4,193,354
Net loss (unaudited) -- -- -- -- --
Net investment gains (unaudited) -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1996 (unaudited) 1,940,600 $ 19,406 47,400 $ 474 $4,193,354
========== ========== ========== ========== ==========
<CAPTION>
Paid-in
capital Class A
attributed Net common
to unrealized stock
Retained detachable loss on held in
earnings warrants investments treasury Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 $ 1,855,005 $ -- ($ 30,278) ($ 26,740) $ 6,011,221
Net gain 256,523 -- -- -- 256,523
Net investment gains -- -- 18,436 -- 18,436
Issuance of surplus note -- 150,000 -- -- 150,000
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1995 2,111,528 150,000 (11,842) (26,740) 6,436,180
Net loss (unaudited) (180,997) -- -- -- (180,997)
Net investment gains (unaudited) -- -- 8,687 -- 8,687
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1996 (unaudited) $ 1,930,531 $ 150,000 ($ 3,155) ($ 26,740) $ 6,263,870
=========== =========== =========== =========== ===========
</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
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 180,997) ($ 299,291)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation 19,123 11,420
Amortization of deferred acquisition costs 119,729 73,302
Amortization of intangible assets -- 31,119
Deferred income taxes (87,500) (9,769)
(Increase) decrease in operating assets:
Net premiums receivable 190,153 487,650
Prepaid and refundable income taxes (60,063) (350,118)
Other assets (123,012) (202,988)
Increase (decrease) in operating liabilities:
Payable to reinsurers (36,249) 37,704
Net claims liabilities (59,906) 93,136
Net unearned premiums 110,505 148,072
Net commissions payable 329,336 672,920
Accounts payable and accrued expenses 215,717 (12,592)
----------- -----------
Net cash provided by operating activities 436,836 680,565
----------- -----------
Cash flows from investing activities:
Furniture and equipment acquired -- (15,142)
Proceeds from sales of investments 57,195 2,237
Purchases of investments (50,696) (210,161)
Payments and costs associated with acquired business (55,627) (435,535)
----------- -----------
Net cash used in investing activities (49,128) (658,601)
----------- -----------
Cash flows from financing activities:
Decrease in note discount 3,750 --
----------- -----------
Increase in cash and equivalents 391,458 21,964
Cash and equivalents:
Beginning of year 6,777,328 2,724,864
----------- -----------
March 31, $ 7,168,786 $ 2,746,828
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for income taxes $ 97,161 $ 117,480
=========== ===========
</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
March 31, 1996 and 1995
(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 March 31, 1996 and results of operations for
the three-month periods ended March 31, 1996 and 1995. The operating results for
the periods are not necessarily indicative of the results to be expected for the
entire year.
Note 2 - Reinsurance
From October 1, 1993 to September 30, 1995, Arista had a quota share reinsurance
agreement with NRG America Reassurance Corporation (during 1994, its name was
subsequently changed to Harbourton Reinsurance, Inc., "Harbourton") whereby
Arista ceded, 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 received a fee based on premiums ceded.
Effective October 1, 1995, Arista entered into an agreement with The Cologne
Life Reinsurance Company ("Cologne") whereby Arista cedes by way of reinsurance
a 50% quota share participation in Arista's New York State statutory disability
benefits insurance, both for business in force as of October 1, 1995 and for new
business written or acquired after October 1, 1995. This agreement is subject to
cancellation by either party on 90 days' prior written notice.
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
the obligations assumed under the reinsurance agreement.
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<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(unaudited)
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.,
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 warrant held by Mr. Kooper). Does
not include securities and/or options to purchase shares of Class A Common Stock
owned by Louis H. Saltzman, son-in-law of Mr. Kooper. Mr. Kooper is also the
owner of Bernard Kooper Life Agency, Inc. (the "Agency"), one of the general
agents of Arista. The Agency received approximately $53,000 and $58,000 in
commissions from Arista during the three months ended March 31, 1996 and 1995,
respectively. Of this amount, the Agency paid approximately $37,000 and $40,000
during the three months ended March 31, 1996 and 1995, 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 was approximately $6,000 and $7,000 during the three months ended
March 31, 1996 and 1995, respectively.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1996
(Unaudited)
Results of Operations
The Company's net loss for the first quarter of 1996 was approximately $181,000,
compared with a net loss of approximately $299,000 for the first quarter of
1995. The loss before tax benefits was approximately $231,000 and $427,000 for
the first quarters of 1996 and 1995, respectively.
Arista's gross premiums earned were $5.9 million for the first quarter of 1996
as compared to gross premiums earned of $6.5 million for the first quarter of
1995. This decrease was due to Arista's termination of its assumption
reinsurance agreement during the first quarter of 1996 wherein Arista had
assumed Hawaii Temporary Disability Insurance business that had been ceded by
Allianz Life Insurance Company of North America together with a continuation of
the net loss of covered lives as well as policyholders.
Arista's gross claims incurred for the first three months of 1996 were $4.0
million, representing 66.7% of gross premiums earned. For the first three
months of 1995, gross claims incurred were $4.7 million, representing 72.0% of
the gross premiums earned. The principal reason for this change was a
nonrecurring increase of approximately $260,000 or 5% in the claim reserves
which was recorded in the first quarter of 1995.
Consolidated investment income for the first three months of 1996 and 1995 was
approximately $92,000 and $56,000, respectively. This increase reflects
additional income earned on the proceeds received for Arista's surplus note.
Arista's other income was approximately $66,000 and $45,000 for the first
quarters of 1996 and 1995, respectively. This increase was attributable to
additional business serviced under Arista's third party administrative
agreements.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1996
(Unaudited)
Arista's gross commissions incurred as a percentage of gross premiums earned was
18.5% for the first quarter of 1996, as compare to 16.9% for the comparable 1995
period. The principal reason for this change was an increase in the number of
smaller risks in force through recent acquisitions, generating an increase in
the level of top-of-scale commissions.
Consolidated general and administrative expenses decreased slightly from
approximately $1,192,00 for the first quarter of 1995 to approximately
$1,173,000 for the comparable 1996 period.
Liquidity and Capital Resources
Retained earnings decreased from $6,436,180 at December 31, 1995 to $6,263,870
at March 31, 1996 as a result of the Company's net loss.
Management believes that Arista's statutory capital and surplus of approximately
$6.0 million at March 31, 1996 is sufficient to support its current annual
premium level as well as provide additional annual premiums of aproximately
$12.0 million.
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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. Exhibits: None
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
---------------------------------------
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)
May 17, 1996
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<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,705,635
<DEBT-MARKET-VALUE> 2,726,490
<EQUITIES> 81,654
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,787,289
<CASH> 7,168,786
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 996,279
<TOTAL-ASSETS> 15,377,546
<POLICY-LOSSES> 2,203,252
<UNEARNED-PREMIUMS> 774,610
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,853,750
0
0
<COMMON> 19,880
<OTHER-SE> 6,243,990
<TOTAL-LIABILITY-AND-EQUITY> 15,377,546
2,972,010
<INVESTMENT-INCOME> 91,784
<INVESTMENT-GAINS> (208)
<OTHER-INCOME> 65,508
<BENEFITS> 1,982,479
<UNDERWRITING-AMORTIZATION> 81,315
<UNDERWRITING-OTHER> 2,189,638
<INCOME-PRETAX> (231,397)
<INCOME-TAX> (50,400)
<INCOME-CONTINUING> (180,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180,997)
<EPS-PRIMARY> (0)
<EPS-DILUTED> (0)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
