<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 June 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
August 11, 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.
-1-
<PAGE>
ARISTA INVESTORS CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 1997 3
(Unaudited) and December 31, 1996
Consolidated Statements of Operations (Unaudited) for 5
the three months and six months ended June 30, 1997
and 1996
Consolidated Statements of Changes in Stockholders' 6
Equity, for the six months ended June 30, 1997
(Unaudited) and the year ended December 31, 1996
Consolidated Statements of Cash Flows (Unaudited) 7
for the six months ended June 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 10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1 through Item 6 13
Signatures 14
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
-------- ------------- -------------
(unaudited)
<S> <C> <C>
Investments:
Held to maturity securities:
Bonds and long-term U. S. Treasury obligations at amortized cost (market
value--$2,701,513 at June 30, 1997 and $2,650,210 at December 31, 1996)...... $ 2,687,464 $ 2,696,220
Available-for-sale securities:
Redeemable preferred stocks, at market value (amortized cost of $31,524 at
June 30, 1997 and $84,149 at December 31, 1996).............................. 6,068 56,920
Trading security, at market value (cost of $279 at June 30, 1997 and $1,279
December 31, 1996)........................................................... 54 319
------------- -------------
Total investments...................................................... 2,693,586 2,753,459
Cash and equivalents............................................................... 8,134,643 7,076,659
Premiums receivable, net........................................................... 3,781,500 4,304,200
Deferred policy acquisition costs, net............................................. 649,455 790,137
Receivables from related parties................................................... 185,510 182,787
Furniture and office equipment, at cost, net of accumulated depreciation of
$754,752 at June 30, 1997 and $726,193 at December 31, 1996...................... 137,980 138,552
Prepaid and refundable income taxes................................................ 781,037 757,548
Other assets....................................................................... 930,143 1,106,908
------------- -------------
Total Assets.................................................................. $ 17,293,854 $ 17,110,250
------------- -------------
------------- -------------
</TABLE>
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to reinsurers........................................................... 87,376 $ 93,121
Claims liabilities.............................................................. 3,558,000 4,351,500
Unearned premiums............................................................... 1,507,960 1,397,380
Commissions payable............................................................. 842,945 766,575
Accounts payable and accrued expenses........................................... 1,614,855 1,160,765
Deferred income taxes........................................................... 210,290 78,329
Surplus note payable, net....................................................... 2,872,500 2,865,000
------------- -------------
Total liabilities................................................... 10,693,926 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 at June 30, 1997 and 1,940,600 at December 31, 1996............. 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............................................................... 1,136,240 935,665
Net unrealized loss on marketable securities.................................... (25,456) (27,229)
------------- -------------
7,126,668 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.......................................... 6,599,928 6,397,580
------------- -------------
Total Liabilities and Stockholders' Equity...................................... $ 17,293,854 $ 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 Six months ended
June 30, June 30,
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------ ------------ ------------- -------------
Revenue:
Gross premiums earned (Note 2)...................... $ 5,376,987 $ 5,664,980 $ 10,996,011 $ 11,609,000
Ceded premiums earned (Note 2)...................... 2,688,493 2,832,490 5,498,005 5,804,500
------------ ------------ ------------- -------------
Net premiums earned.......................... 2,688,494 2,832,490 5,498,006 5,804,500
Net realized investment losses...................... (1,207) 0 (2,519) (208)
Net unrealized investment losses.................... (170) -- (225) --
Investment income................................... 128,296 99,539 255,015 191,323
Other income........................................ 77,159 60,299 152,219 125,807
------------ ------------ ------------- -------------
Total revenue................................ 2,892,572 2,992,328 5,902,496 6,121,422
------------ ------------ ------------- -------------
Expenses:
Underwriting (Note 2):
Gross claims incurred.............................. 3,030,699 3,936,081 5,939,374 7,901,038
Ceded claims incurred.............................. 1,515,350 1,968,041 2,969,687 3,950,519
------------ ------------ ------------- -------------
Net claims incurred.......................... 1,515,349 1,968,040 2,969,687 3,950,519
------------ ------------ ------------- -------------
Gross commissions incurred......................... 1,078,092 1,020,401 2,077,118 2,118,064
Ceded commissions incurred......................... 1,085,768 772,394 2,349,633 1,665,335
------------ ------------ ------------- -------------
Net commissions incurred (earned)............ (7,676) 248,007 (272,515) 452,729
------------ ------------ ------------- -------------
Total underwriting expenses.................. 1,507,673 2,216,047 2,697,172 4,403,248
General and administrative expenses................ 1,409,307 1,286,536 2,681,849 2,459,826
------------ ------------ ------------- -------------
Total expenses............................... 2,916,980 3,502,583 5,379,021 6,863,074
------------ ------------ ------------- -------------
Income (loss) before income taxes (benefits)........... (24,408) (510,255) 523,475 (741,652)
Provision for income taxes (benefits).................. 200 (154,600) 322,900 (205,000)
------------ ------------ ------------- -------------
Net income (loss)...................................... (24,608) (355,655) 200,575 (536,652)
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Net income (loss) per common share..................... ($0.01) ($0.14) $0.08 ($0.21)
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
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
Six months ended June 31, 1997 (unaudited) and year ended December 31, 1996
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Convertible Class B
--------------------- ---------------------
<CAPTION>
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--June 30, 1997 (unaudited)........................ 2,580,100 $ 25,801 47,400 $ 474 $ 5,839,609
---------- --------- ----------- --------- ------------
---------- --------- ----------- --------- ------------
</TABLE>
<TABLE>
<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).................... 200,575 -- -- -- -- 200,575
Net investment gain (unaudited)........... -- -- -- 1,773 -- 1,773
------------ ----------- ---------- ----------- ---------- ------------
Balance--June 30, 1997 (unaudited).......... $ 1,136,240 ($ 500,000) $ 150,000 ($ 25,456) ($ 26,740) $ 6,599,928
------------ ----------- ---------- ----------- ---------- ------------
------------ ----------- ---------- ----------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................... $ 200,575 $ (536,652)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation.................................................................... 28,559 34,586
Amortization of discount on surplus note........................................ 7,500 7,500
Amortization of deferred acquisition costs...................................... 140,682 212,085
Loss on sale of investments..................................................... 2,519 208
Deferred income taxes/(benefit)................................................. 131,961 (77,498)
(Increase) decrease in operating assets:
Premiums receivable........................................................... 522,700 316,997
Receivables from related parties.............................................. (2,723) --
Prepaid and refundable income taxes........................................... (23,489) (323,032)
Other assets.................................................................. 176,765 (254,029)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses......................................... 454,090 408,085
Payable to reinsurer.......................................................... (5,745) (64,454)
Claims liabilities............................................................ (793,500) (62,867)
Unearned premiums............................................................. 110,580 87,990
Commissions payable........................................................... 76,370 196,152
------------ ------------
Net cash provided by (used in) operating activities.................... 1,026,844 (54,929)
------------ ------------
Cash flows from investing activities:
Capital expenditures................................................................ (27,987) (6,266)
Proceeds from sale of investments................................................... 60,142 57,195
Purchases of investments............................................................ (1,015) (47,350)
Payments to acquire new insurance business.......................................... -- (109,302)
------------ ------------
Net cash used in investing activities.................................. 31,140 (105,723)
------------ ------------
Cash flows from financing activities:
Issuance of Class A common stock.................................................... -- 895,300
Notes receivable from shareholder, secured.......................................... -- (500,000)
------------ ------------
Net cash provided by financing activities.............................. -- 395,300
------------ ------------
Increase in cash and equivalents................................. 1,057,984 234,648
Cash and equivalents:
Beginning of year................................................................... 7,076,659 6,777,328
------------ ------------
June 30,............................................................................ $ 8,134,643 $ 7,011,976
------------ ------------
------------ ------------
Supplemental cash flow disclosure:
Cash paid during the period for income taxes........................................ $ 210,617 $ 196,407
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 1997 and
results of operations for the six-month and three-month periods ended June
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 Insurance Company ("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 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 to Arista in the event that the reinsurer is unable to
meet its proportionate share of the obligations assumed under the reinsurance
agreement.
-8-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
(unaudited)
Note 3 - Related parties
At June 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 $112,000 and $110,000 in commissions from Arista during the six
months ended June 30, 1997 and 1996, respectively. Of this amount, the Agency
paid approximately $77,000 and $78,000 during the six months ended June 30,
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 by the Agency was
approximately $13,000 in each of the six months ended June 30, 1997 and 1996.
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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
Six-Month And Three-Month Periods Ended June 30, 1997 VS.
June 30, 1996 (unaudited)
The Company's after tax income for the first six months of 1997 was
approximately $201,000; the Company's after tax loss for the second quarter
ended June 30, 1997 was approximately $25,000. In comparison, for the first
six months of 1996, the Company's net loss after taxes was approximately
$537,000; for the second quarter ended June 30, 1996, the Company had a net
loss of approximately $356,000.
Arista's gross premiums earned were approximately $11.0 million and $11.6
million for the first six months of 1997 and 1996, respectively. Gross
premiums earned for the second quarters of 1997 and 1996 were approximately
$5.4 million and $5.7 million, repectively. 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 six months of 1997 were
approximately $5.9 million, representing 54.0% of the gross premiums earned.
For the first six months of 1996, gross claims incurred were approximately $
7.9 million, representing 68.1% of gross premiums earned. For the second
quarters of 1997 and 1996, the ratios were 56.4% and 69.5%, 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 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
-10-
<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
operations. The current operations for the first six months of 1997 includes
a reduction in net claims liabilities of approximately $790,000, which
partially accounts for the reduction in the loss ratio from 68.1% to 54.0%.
Consolidated investment income for the first six months of 1997 and 1996 were
approximately $255,000 and $191,000, respectively. For the second quarters
of 1997 and 1996, consolidated investment income was approximately $129,000
and $100,000 respectively.
Other income for the first six months of 1997 and 1996 was approximately
$152,000 and $125,000, respectively. Other income includes third-party
administration fees of approximately $152,000 and $120,000 earned by Arista
during the first six months of 1997 and 1996, respectively. This increase was
attributable to additional business serviced under Arista's third-party
administration agreements. For the second quarter of 1997 and 1996, other
income was approximately $77,000 and $60,000, respectively.
Arista's gross commissions incurred as a percentage of gross premiums earned
were 18.9% and 18.2% for the first six months of 1997 and 1996, respectively.
In addition, the ratios of gross commissions incurred to gross premiums
earned during the second quarters of 1997 and 1996 were 20.1% and 18.2%,
respectively. The principal reason for these changes 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.
The consolidated general and administrative expenses for the first six months
of 1997 and 1996 were approximately $2.7 million and $2.5 million,
respectively. This increase was due principally to increases in professional
fees of approximately $216,000 and interest on the surplus note issued by
Arista of approximately $53,000, offset by a decrease in employee salaries
and benefits of approximately $35,000. For the second quarters of 1997 and
1996, the consolidated general and administrative expenses were approximately
$1,409,000 and $1,287,000 respectively.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
Retained earnings increased from $6,397,580 at December 31, 1996 to
$6,599,928 at June 30, 1997 as a result of the Company's net income.
Management believes that Arista's statutory capital and surplus of
approximately $6.7 million at June 30, 1997 is sufficient to support its
existing 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
-13-
<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)
August 13, 1997
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,687,464
<DEBT-MARKET-VALUE> 2,701,513
<EQUITIES> 6,068
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,693,586
<CASH> 8,134,643
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 649,455
<TOTAL-ASSETS> 17,293,854
<POLICY-LOSSES> 3,558,000
<UNEARNED-PREMIUMS> 1,507,960
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,872,500
0
0
<COMMON> 26,275
<OTHER-SE> 6,573,653
<TOTAL-LIABILITY-AND-EQUITY> 17,293,854
10,996,011
<INVESTMENT-INCOME> 255,015
<INVESTMENT-GAINS> (2,519)
<OTHER-INCOME> 152,219
<BENEFITS> 5,939,374
<UNDERWRITING-AMORTIZATION> 140,682
<UNDERWRITING-OTHER> 2,268,652
<INCOME-PRETAX> 523,475
<INCOME-TAX> 322,900
<INCOME-CONTINUING> 200,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,575
<EPS-PRIMARY> $0.08
<EPS-DILUTED> $0.08
<RESERVE-OPEN> 4,351,500
<PROVISION-CURRENT> 6,359,626
<PROVISION-PRIOR> (420,251)
<PAYMENTS-CURRENT> (3,387,376)
<PAYMENTS-PRIOR> (3,345,490)
<RESERVE-CLOSE> 3,558,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
