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 September 30, 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
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 12, 1997 was
2,570,100 shares of Class A Common Stock, $0.01 par value (excluding 10,000
shares of treasury stock) and 47,400 shares of 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, 1997 3
(Unaudited) and December 31, 1996
Consolidated Statements of Operations (Unaudited) 5
for the three months and nine months ended
September 30, 1997 and 1996
Consolidated Statements of Changes in Stockholders' 6
Equity, for the nine months ended September 30,
1997 (Unaudited) and the year ended December 31,
1996
Consolidated Statements of Cash Flows (Unaudited) 7
for the nine months ended September 30, 1997 and
1996
Notes to Consolidated Financial Statements 8
(Unaudited)
Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations:
Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1 through Item 6 13
Signatures 14
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<PAGE>
PART I. FINANCIAL INFORMATION
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Held to maturity securities:
Bonds and long-term U. S. Treasury
obligations at amortized cost (market
value - $2,676,278 at September 30, 1997
and $2,650,210 at December 31, 1996) $ 2,633,549 $ 2,696,220
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $31,524 at September 30,
1997 and $84,149 at December 31, 1996) 7,585 56,920
Trading security, at market value (cost of
$279 at September 30, 1997 and $ 1,279
December 31, 1996) 279 319
----------- -----------
Total investments 2,641,413 2,753,459
Cash and equivalents 8,287,787 7,076,659
Premiums receivable, net 3,799,500 4,304,200
Deferred policy acquisition costs, net 565,592 790,137
Receivables from officers and directors 304,866 182,787
Furniture and office equipment, at cost, net of
accumulated depreciation of $769,185 at September
30, 1997 and $726,193 at December 31, 1996 128,277 138,552
Prepaid and refundable income taxes 564,538 757,548
Other assets 925,047 1,106,908
----------- -----------
Total Assets $17,217,020 $17,110,250
=========== ===========
</TABLE>
(Continued)
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to reinsurers $ 88,975 $ 93,121
Claims liabilities 3,700,200 4,351,500
Unearned premiums 1,480,300 1,397,380
Commissions payable 837,761 766,575
Accounts payable and accrued expenses 1,510,129 1,160,765
Deferred income taxes 188,275 78,329
Surplus note payable, net 2,876,250 2,865,000
------------ ------------
Total Liabilities 10,681,890 10,712,670
------------ ------------
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
Common stock, Class B, $.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 1,069,925 935,665
Net unrealized loss on marketable securities (23,939) (27,229)
------------ ------------
7,061,870 6,924,320
Secured promissory note from shareholder (500,000) (500,000)
Less 10,000 shares Class A common stock in
treasury, at cost (26,740) (26,740)
------------ ------------
Total Stockholders' Equity 6,535,130 6,397,580
------------ ------------
Total Liabilities and Stockholders' Equity $ 17,217,020 $ 17,110,250
============ ============
</TABLE>
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,
--------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Gross premiums earned (Note 2) $ 5,475,359 $ 6,119,849 $ 16,471,370 $ 17,728,849
Ceded premiums earned (Note 2) 2,737,680 3,059,925 8,235,685 8,864,425
----------- ----------- ------------ ------------
Net premiums earned 2,737,679 3,059,924 8,235,685 8,864,424
Net realized investment losses (106) (321) (2,625) (529)
Net unrealized investment gains/(losses) 331 -- 106 --
Investment income 124,834 102,723 379,849 294,046
Other income 100,772 79,754 252,991 205,561
----------- ----------- ------------ ------------
Total revenue 2,963,510 3,242,080 8,866,006 9,363,502
----------- ----------- ------------ ------------
Expenses:
Underwriting (Note 2):
Gross claims incurred 3,485,032 3,814,810 9,424,406 11,715,848
Ceded claims incurred 1,742,516 1,907,405 4,712,203 5,857,924
----------- ----------- ------------ ------------
Net claims incurred 1,742,516 1,907,405 4,712,203 5,857,924
----------- ----------- ------------ ------------
Gross commissions incurred 979,502 1,056,146 3,056,620 3,174,210
Ceded commissions incurred 906,190 1,053,071 3,255,823 2,718,406
----------- ----------- ------------ ------------
Net commissions incurred (earned) 73,312 3,075 (199,203) 455,804
----------- ----------- ------------ ------------
Total underwriting expenses 1,815,828 1,910,480 4,513,000 6,313,728
General and administrative expenses 1,170,297 1,159,838 3,852,146 3,619,664
----------- ----------- ------------ ------------
Total expenses 2,986,125 3,070,318 8,365,146 9,933,392
----------- ----------- ------------ ------------
Income (loss) before income taxes (benefits) (22,615) 171,762 500,860 (569,890)
Provision for income taxes (benefits), net 43,700 62,700 366,600 (142,300)
----------- ----------- ------------ ------------
Net income (loss) (66,315) 109,062 134,260 (427,590)
=========== =========== ============ ============
Net income (loss) per common share ($0.03) $0.04 $0.05 ($0.16)
=========== =========== ============ ============
Weighted average number of common
shares outstanding 2,617,500 2,617,500 2,617,500 2,617,500
=========== =========== ============ ============
</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
Nine months ended September 30, 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 - September 30, 1997 (unaudited) 2,580,100 $25,801 47,400 $474 $5,839,609
========= ======= ====== ==== ==========
<CAPTION>
Paid-in
capital Class A
Secured attributed Net common
Promissory to unrealized stock
Retained Note detachable loss on held in
earnings Receivable warrants investments treasury Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <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 -- (500,000) -- -- -- 1,152,650
----------- ----------- ----------- ----------- ----------- -----------
Balance - December 31, 1996 935,665 (500,000) 150,000 (27,229) (26,740) 6,397,580
Net income (unaudited) 134,260 -- -- -- -- 134,260
Net investment gain (unaudited) -- -- -- 3,290 -- 3,290
----------- ----------- ----------- ----------- ----------- -----------
Balance - September 30, 1997 (unaudited) $ 1,069,925 ($ 500,000) $ 150,000 ($ 23,939) ($ 26,740) $6,535,130
=========== =========== =========== =========== =========== ==========
</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, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 134,260 $ (427,590)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 42,992 49,460
Discount on surplus note 11,250 11,250
Amortization of deferred acquisition costs 224,545 245,984
Loss on sale of investments 2,625 529
Deferred income taxes/(benefit) 109,946 (130,998)
(Increase) decrease in operating assets:
Premiums receivable 504,700 243,103
Receivables from officers and directors (122,079)
Prepaid and refundable income taxes 193,010 29,812
Notes receivable shareholder, secured -- (500,000)
Other assets 181,861 (311,512)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 349,364 82,389
Payable to reinsurer (4,146) (57,168)
Net claims liabilities (651,300) (104,498)
Net unearned premiums 82,920 54,075
Commissions payable 71,186 (22,356)
----------- -----------
Net cash provided by (used in) operating activities 1,131,134 (837,520)
----------- -----------
Cash flows from investing activities:
Capital expenditures (32,717) (6,927)
Proceeds from sale of investments 112,990 56,666
Purchases of investments (279) (44,099)
Payments to acquire new insurance business -- (184,829)
Deferred policy acquisition costs -- 147,203
----------- -----------
Net cash used in investing activities 79,994 (31,986)
----------- -----------
Cash flows from financing activities:
Issuance of Class A common stock -- 895,300
----------- -----------
Net cash provided by financing activities 0 895,300
----------- -----------
Increase in cash and equivalents 1,211,128 25,794
Cash and equivalents:
Beginning of period 7,076,659 6,777,328
----------- -----------
End of period $ 8,287,787 $ 6,803,122
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for income taxes $ 295,931 $ 293,401
=========== ===========
</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, 1997 and 1996
(Unaudited)
Note 1 - Basis of presentation
The accompanying consolidated financial statements (the "Statements") include
the accounts of Arista Investors Corp. and its wholly-owned subsidiaries: Arista
Insurance Company ("Arista"), The Collection Group, Inc. ("Collection"), and
Arista Administrative Services, Inc. ("Administrative"), collectively the
"Company". The 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, 1997 and the results of operations for
the nine-month and three-month periods ended September 30, 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
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 disability benefits
insurance business, 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
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, 1997 and 1996
(unaudited)
Note 3 - Related parties
At September 30, 1997 and December 31, 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 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 $169,000 and
$165,000 in commissions from Arista during the nine months ended September 30,
1997 and 1996, respectively. Of this amount, the Agency paid approximately
$116,000 during both the nine months ended September 30, 1997 and 1996 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 $20,000 during both the nine
months ended September 30, 1997 and 1996. Commissions payable to the Agency at
September 30, 1997 and 1996 were $13,494 and $11,622, respectively. At September
30, 1997, Arista's salary advances to an officer and director aggregated
$80,500. Salary advances are limited to 50% of approved compensation and are to
be repaid within one year.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1997 and 1996
(Unaudited)
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
The Company's net income for the nine months ended September 30, 1997 was
approximately $134,000; the Company experienced a net loss for the third quarter
ended September 30, 1997 of approximately $66,000. For the nine months ended
September 30, 1996, the Company's net loss was approximately $428,000 and for
the third quarter ended September 30, 1996, the Company's net income was
approximately $109,000. The results for the nine months ended September 30, 1997
reflect a provision for income taxes of $366,600, which includes New York State
franchise taxes of approximately $237,000 that is based on Arista's statutory
income basis.
Arista's gross premiums earned were approximately $16.5 million and $17.7
million for the first nine months of 1997 and 1996, respectively. Gross premiums
earned for the third quarters of 1997 and 1996 were approximately $5.5 million
and $6.1 million, repectively. This decrease was due to Arista's continued net
loss of covered lives as well as policyholders.
Arista's gross claims incurred for the first nine months of 1997 were
approximately $9.4 million, representing 57.2% of gross premiums earned. For the
first nine months of 1996, gross claims incurred were approximately $11.7
million, representing 66.1% of gross premiums earned. For the third quarter of
1997 and 1996, the gross claims incurred ratios were 63.6% and 62.3%,
respectively. 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
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1997 and 1996
(Unaudited)
and circumstances then known. A degree of variability 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 nine months of 1997 included a reduction in gross claims liabilities
of approximately $651,000, or 4.0% of gross premiums earned.
Consolidated investment income for the nine months of 1997 and 1996 were
approximately $380,000 and $294,000, respectively. For the third quarter of 1997
and 1996, consolidated investment income was approximately $125,000 and
$103,000, respectively.
Other income for the nine months of 1997 and 1996 was approximately $253,000 and
$206,000, respectively. Other income includes third-party administration fees of
approximately $248,000 and $187,000 earned by Arista during the nine months of
1997 and 1996, respectively. This increase was attributable to additional
business serviced under Arista's third-party administration agreements. For the
third quarter of 1997 and 1996, other income was approximately $101,000 and
$80,000, respectively.
Arista's gross commissions incurred as a percentage of gross premiums earned
were 18.6% and 17.9% for the nine months of 1997 and 1996, respectively. In
addition, the ratios of gross commissions incurred to gross premiums earned
during the third quarter of 1997 and 1996 were 17.9% and 17.3%, respectively.
The consolidated general and administrative expenses for the nine months of 1997
and 1996 were approximately $3.9 million
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1997 and 1996
(Unaudited)
and $3.6 million, respectively. This change was due principally to increases in
professional fees during the nine months of 1997 of approximately $247,000 and
additional interest expense attributable to the surplus note of approximately
$60,000, offset by a decrease in salaries and benefits of approximately $91,000.
For the third quarter of 1997 and 1996, the consolidated general and
administrative expenses were both approximately $1.2 million.
Liquidity and Capital Resources
Retained earnings increased from $6,397,580 at December 31, 1996 to $6,535,130
at September 30, 1997 as a result of the Company's net income for the nine-month
period.
Management believes that Arista's statutory capital and surplus of approximately
$7.0 million at September 30, 1997 is sufficient to support its current annual
premium level.
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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 14, 1997
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<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,633,549
<DEBT-MARKET-VALUE> 2,676,278
<EQUITIES> 7,585
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,641,413
<CASH> 8,287,787
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 565,592
<TOTAL-ASSETS> 17,217,020
<POLICY-LOSSES> 3,700,200
<UNEARNED-PREMIUMS> 1,480,300
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,876,250
0
0
<COMMON> 26,275
<OTHER-SE> 6,508,855
<TOTAL-LIABILITY-AND-EQUITY> 17,217,020
16,471,370
<INVESTMENT-INCOME> 379,849
<INVESTMENT-GAINS> (2,625)
<OTHER-INCOME> 252,991
<BENEFITS> 9,424,406
<UNDERWRITING-AMORTIZATION> 224,545
<UNDERWRITING-OTHER> 3,428,398
<INCOME-PRETAX> 500,860
<INCOME-TAX> 366,600
<INCOME-CONTINUING> 134,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,260
<EPS-PRIMARY> $0.05
<EPS-DILUTED> $0.05
<RESERVE-OPEN> 4,351,500
<PROVISION-CURRENT> 9,985,107
<PROVISION-PRIOR> (560,701)
<PAYMENTS-CURRENT> (6,691,007)
<PAYMENTS-PRIOR> (3,384,699)
<RESERVE-CLOSE> 3,700,200
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
