<PAGE>
FORM 10-Q
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, 1997
--------------
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-NY
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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 May 13, 1997 was
2,570,100 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
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1997 (Unaudited)
and December 31, 1996 3
Consolidated Statements of Operations (Unaudited) for the
three months ended March 31, 1997 and 1996 5
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1997 (Unaudited) and the
year ended December 31, 1996 6
Consolidated Statements of Cash Flows (Unaudited) for the
three months ended March 31, 1997 and 1996 7
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. MD&A:
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1 through Item 6 12
Signatures 13
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
ASSETS (UNAUDITED) 1996
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Investments:
Held-to-maturity securities:
Bonds and long-term U. S. Treasury obligations at
amortized cost (market value--$2,672,751 at March 31,
1997 and $2,650,210 at December 31, 1996)................ $ 2,693,083 $ 2,696,220
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $57,837 at March 31, 1997 and $84,149
at December 31, 1996).................................... 31,506 56,920
Trading securities, at market value (cost of $702 and
$1,279 at March 31, 1997 and December 31, 1996)............ 265 319
------------- -------------
Total investments.................................... 2,724,854 2,753,459
Cash and equivalents........................................... 7,906,115 7,076,659
Premiums receivable, net....................................... 3,986,100 4,304,200
Deferred policy acquisition costs, net......................... 728,011 790,137
Receivables from related parties............................... 685,655 682,787
Furniture and equipment, at cost, net of accumulated
depreciation of $740,352 at March 31, 1997 and $726,193 at
December 31, 1996............................................ 152,379 138,552
Prepaid and refundable income taxes............................ 712,518 757,548
Other assets................................................... 1,153,238 1,106,908
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Total assets............................................. $18,048,870 $17,610,250
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</TABLE>
(Continued)
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) 1996
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Liabilities:
Payable to reinsurer......................................... $ 95,906 $ 93,121
Unpaid claims liabilities.................................... 3,843,000 4,351,500
Unearned premiums............................................ 1,669,730 1,397,380
Commissions payable.......................................... 808,081 766,575
Accounts payable and accrued expenses........................ 1,395,864 1,160,765
Deferred income taxes, net................................... 243,878 78,329
Surplus note payable, net.................................... 2,868,750 2,865,000
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Total liabilities.................................... 10,925,209 10,712,670
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Commitments and contingencies: (Note 2)
Stockholders' equity:
Class A common stock, $.01 par value; 9,950,000 shares
authorized; 2,580,100 shares issued........................ 25,801 25,801
Class B convertible common stock, $.01 par value; 50,000 shares
authorized, 47,400 shares issued and outstanding........... 474 474
Additional paid-in capital................................... 5,839,609 5,839,609
Paid-in capital attributed to detachable warrant............. 150,000 150,000
Retained earnings............................................ 1,160,848 935,665
Net unrealized loss on investment securities................. (26,331) (27,229)
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7,150,401 6,924,320
Less 10,000 shares Class A common stock held in treasury,
at cost.................................................... (26,740) (26,740)
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Total stockholders' equity................................ 7,123,661 6,897,580
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Total liabilites and stockholders' equity................. $18,048,870 $17,610,250
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</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, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Gross premiums earned (Note 2)............................... $ 5,619,024 $ 5,944,020
Ceded premiums earned (Note 2)............................... 2,809,512 2,972,010
------------ ------------
Net premiums earned................................... 2,809,512 2,972,010
Net realized investment losses............................... (1,312) (208)
Net unrealized investment losses............................. (55) 0
Net investment income........................................ 126,719 91,784
Other income................................................. 75,060 65,508
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Total revenue.......................................... 3,009,924 3,129,094
Expenses:
Underwriting:
Gross claims incurred (Note 2)............................. 2,908,675 3,964,957
Ceded claims incurred (Note 2)............................. 1,454,337 1,982,478
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Net claims incurred.................................. 1,454,338 1,982,479
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Gross commissions incurred (Note 2)........................ 999,026 1,097,663
Ceded commissions incurred (Note 2)........................ 1,263,865 892,941
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Net commissions incurred (benefit) (Note 2).......... (264,839) 204,722
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Total underwriting expenses.......................... 1,189,499 2,187,201
General and administrative expenses........................ 1,272,542 1,173,290
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Total expenses...................................... 2,462,041 3,360,491
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Income (loss) before income tax provision (benefits)........... 547,883 (231,397)
Net provision (benefit)........................................ 322,700 (50,400)
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Net income (loss).............................................. $ 225,183 $ (180,997)
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------------ ------------
Net income (loss) per common share............................. $ 0.09 $ (0.08)
------------ ------------
------------ ------------
Weighted average number of common shares....................... 2,617,500 2,211,900
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</TABLE>
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, 1997 (unaudited) and year ended December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------
CLASS A CONVERTIBLE CLASS B
-------------------------- ----------------------
NUMBER PAR NUMBER PAR ADDITIONAL
OF VALUE OF VALUE PAID-IN
SHARES $.01 SHARES $.01 CAPITAL
---------- -------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance--January 1, 1996............................. 1,940,600 $ 19,406 47,400 $ 474 $ 4,193,354
Net loss........................................... -- -- -- -- --
Net investment loss................................ -- -- -- -- --
Issuance of shares of Class A common stock
under the Incentive Stock Option Plan, from a
Warrant and from a Non-qualified Stock Option.... 639,500 6,395 -- -- 1,646,255
---------- ------- ----------- --------- ------------
Balance--December 31, 1996........................... 2,580,100 25,801 47,400 474 5,839,609
Net income (unaudited)............................. -- -- -- -- --
Net investment gain (unaudited).................... -- -- -- -- --
---------- ------- ----------- --------- ------------
Balance--March 31, 1997 (unaudited).................. 2,580,100 $ 25,801 47,400 $ 474 $ 5,839,609
---------- ------- ----------- --------- ------------
---------- ------- ----------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
PAID-IN
CAPITAL
ATTRIBUTED NET CLASS A
TO UNREALIZED COMMON STOCK
RETAINED DETACHABLE LOSS ON HELD IN
EARNINGS WARRANTS INVESTMENTS TREASURY TOTAL
------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance--January 1, 1996................... $ 2,111,528 $ 150,000 ($11,842) ($26,740) $ 6,436,180
Net loss................................. (1,175,863) -- -- -- (1,175,863)
Net investment loss...................... -- -- (15,387) -- (15,387)
Issuance of shares of Class A common stock
under the Incentive Stock Option Plan,
from a Warrant and from a Non-qualified
Stock Option........................... -- -- -- -- $ 1,652,650
------------- ------------ ---------- ------------- ------------
Balance--December 31, 1996................. 935,665 150,000 (27,229) (26,740) 6,897,580
Net income (unaudited)................... 225,183 -- -- -- 225,183
Net investment gain (unaudited).......... -- -- 898 -- 898
------------- ------------ ---------- ------------- ------------
Balance--March 31, 1997 (unaudited)........ $ 1,160,848 $ 150,000 ($26,331) ($26,740) $ 7,123,661
------------- ------------ ---------- ------------- ------------
------------- ------------ ---------- ------------- ------------
</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, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $225,183 $(180,997)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation................................................ 14,160 19,123
Amortization of deferred acquisition costs.................. 62,126 119,729
Amortization of discount on surplus note.................... 3,750 3,750
Loss on sale of investments................................. 1,312 208
Deferred income taxes....................................... 165,549 (87,500)
Unrealized loss on trading securities....................... 55 --
(Increase) decrease in operating assets:
Premiums receivable, net.................................. 318,100 190,153
Prepaid and refundable income taxes....................... 45,030 (60,063)
Other assets.............................................. (49,198) (123,012)
Increase (decrease) in operating liabilities:
Payable to reinsurer...................................... 2,785 (36,249)
Unpaid claims liabilities................................. (508,500) (59,906)
Unearned premiums......................................... 272,350 110,505
Commissions payable....................................... 41,506 329,336
Accounts payable and accrued expenses..................... 235,099 215,717
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Net cash provided by operating activities............... 829,307 440,794
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Cash flows from investing activities:
Furniture and equipment acquired................................ (27,987) --
Proceeds from sales of securities............................... 28,136 56,987
Purchases of investments........................................ -- (50,696)
Payments and costs associated with acquired business............ -- (55,627)
------------ ------------
Net cash used in investing activities................... 149 (49,336)
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Increase in cash and equivalents........................ 829,456 391,458
Cash and equivalents:
Beginning of year............................................... 7,076,659 6,777,328
------------ ------------
March 31,....................................................... $ 7,906,115 $ 7,168,786
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Supplemental cash flow disclosure:
Cash paid during the period for income taxes.................... $ 108,718 $ 97,161
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</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, 1997 AND 1996
(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, 1997 and
results of operations for the three-month periods ended March 31, 1997 and
1996. 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 Insurance Company
("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
State Statutory Disability Benefits Insurance 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>
NOTE 3--RELATED PARTIES
At March 31, 1997 and December 1996, 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 19.1% and 100% of
the outstanding shares of Class A and Class B Common Stock, respectively
(includes 30,400 shares of Class A Common Stock owned by Arlyne Kooper, wife
of Bernard Kooper but does not include 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 390 general agents
of Arista. The Agency received approximately $58,000 and $53,000 in
commissions from Arista during the three months ended March 31, 1997 and
1996, respectively. Of this amount, the Agency paid approximately $40,000 and
$37,000 during the three months ended March 31, 1997 and 1996, 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 $7,000 and $6,000 during the
three months ended March 31, 1997 and 1996, respectively.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements (unaudited) of the Company and the
notes thereto appearing elsewhere in this Form 10-Q. Except for the
historical information contained herein, the following discussion contains
forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those projected in the
forward-looking statements discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in this section, as well as in other sections herein.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1997 vs. March 31, 1996 (unaudited)
The Company's net income for the first quarter of 1997 was approximately
$225,000 ($0.09 per share), compared with a net loss of approximately $181,000
($-0.08 per share) for the first quarter of 1996. Income, before provision for
income taxes, was approximately $548,000 for the first quarter of 1997 as
compared to a loss, before benefit for income taxes, of approximately $231,000
for the first quarter of 1996.
Arista's gross premiums earned were $5.6 million for the first quarter of
1997 as compared to gross premiums earned of $5.9 million for the first
quarter of 1996. This decrease was due to Arista's continuation of the net
loss of covered lives as well as policyholders.
Arista's gross claims incurred for the first three months of 1997 were
$2.9 million, representing 51.8% of gross premiums earned. For the first
three months of 1996, gross claims incurred were $4.0 million, representing
66.7% of gross pre-miums earned. Gross claims incurred includes claim
reserves for unpaid losses, unpaid loss adjustment expenses and required
assessments. Unpaid loss reserves are only estimates of what the insurer
expects to pay on claims, based on facts and circumstances then known. A
degree of variablity is inherent in such estimates. The estimates are
continually reviewed and adjusted as necessary, and such adjustments are
reflected in current operations. The current operations for the first quarter
of 1997 includes a redundancy in the gross unpaid loss reserves of approximately
$500,000.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Consolidated investment income for the first three months of 1997 and
1996 was approximately $127,000 and $92,000, respectively. This increase
reflects additional income earned on the proceeds received for Arista's
surplus note. The surplus note, effective December 21, 1995, was issued by
Arista to Cologne Life Underwriting Management Company.
Arista's other income was approximately $75,000 and $66,000 for the first
quarters of 1997 and 1996, respectively. This increase was attributable to
additional business serviced under Arista's third party administration
agreements.
Arista's gross commissions incurred as a percentage of gross premiums
earned was 17.8% for the first quarter of 1997, as compared to 18.5% for the
comparable 1996 period.
Consolidated general and administrative expenses increased from
approximately $1,173,000 for the first quarter of 1996 to approximately
$1,273,000 for the comparable 1997 period, as a result of increases in
professional fees, statutory fees, allocated loss adjustment expenses, and
printing and postage, offset by a decrease in employee salaries and benefits.
Liquidity and Capital Resources
Retained earnings increased from $935,665 at December 31, 1995 to $1,160,848
at March 31, 1997 as a result of the Company's net income.
Management believes that Arista's statutory capital and surplus of
approximately $6.3 million at March 31, 1997 is sufficient to support its
exisiting level of annual 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)
May 14, 1997
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,693,083
<DEBT-MARKET-VALUE> 2,672,751
<EQUITIES> 31,506
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,724,854
<CASH> 7,906,115
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 728,011
<TOTAL-ASSETS> 18,048,870
<POLICY-LOSSES> 3,843,000
<UNEARNED-PREMIUMS> 1,669,730
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,868,750
0
0
<COMMON> 26,275
<OTHER-SE> 7,097,386
<TOTAL-LIABILITY-AND-EQUITY> 18,048,870
5,619,024
<INVESTMENT-INCOME> 126,719
<INVESTMENT-GAINS> (1,312)
<OTHER-INCOME> 75,060
<BENEFITS> 2,908,675
<UNDERWRITING-AMORTIZATION> 80,196
<UNDERWRITING-OTHER> 927,507
<INCOME-PRETAX> 547,883
<INCOME-TAX> 322,700
<INCOME-CONTINUING> 225,183
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,183
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<RESERVE-OPEN> 4,351,500
<PROVISION-CURRENT> 2,336,525
<PROVISION-PRIOR> (881,438)
<PAYMENTS-CURRENT> (415,025)
<PAYMENTS-PRIOR> (1,293,567)
<RESERVE-CLOSE> 3,843,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
