<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, 1998
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 COR
------------------------------------------------------
(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 July 9, 1998 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 June 30,
1998 (Unaudited) and December 31, 1997 3
Consolidated Statements of Operation
(Unaudited) for the six months ended
June 30, 1998 and 1997 5
Consolidated Statements of Changes in Stock-
holders' Equity for the six months ended
June 30, 1998 (Unaudited) and the year
ended December 31, 1997 6
Consolidated Statements of Cash Flows
(Unaudited for the six months ended June
30, 1998 and 1997 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operat-
tions 11
PART II. OTHER INFORMATION
Item 1 through Item 6 14
Signatures 15
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
- ------
<S> <C> <C>
Investments:
Held-to-maturity securities:
Bonds and long-term U. S. Treasury
obligations at amortized cost (market
value $2,688,052 at June 30, 1998 and
$2,632,904 at December 31, 1997) $ 2,624,261 $ 2,630,453
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $31,524 at June 30,
1998 and December 31, 1997) 8,954 9,250
Trading securities, at market value (cost of $279
at June 30, 1998 and December 31, 1997) 445 85
----------- -----------
Total investments 2,633,660 2,639,788
Cash and equivalents 8,240,929 8,296,943
Premiums receivable 3,499,000 2,978,600
Deferred policy acquisition costs, net 329,022 484,398
Receivables from related parties 447,550 443,182
Furniture and equipment, at cost, net of
accumulated depreciation of $807,664 at June
30, 1998 and $783,799 at December 31, 1997 99,797 113,663
Prepaid and refundable income taxes 823,334 710,050
Other assets 1,444,022 1,366,572
----------- -----------
Total assets $17,517,314 $17,033,196
----------- -----------
----------- -----------
</TABLE>
(Continued)
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<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Payable to reinsurer $ 563,890 $ 158,721
Claims liabilities 2,704,200 3,391,950
Unearned premiums 1,506,600 1,464,800
Commissions payable 754,867 729,912
Accounts payable and accrued expenses 2,277,606 1,627,187
Deferred income taxes, net 253,855 277,771
Surplus note payable, net 2,887,500 2,880,000
------------ ------------
Total liabilities 10,948,518 10,530,341
------------ ------------
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 1,102,222 1,035,985
Accumulated comprehensive income (loss):
Net unrealized investment loss (Note 4) (22,570) (22,274)
------------ ------------
7,095,536 7,029,595
Secured promissory note from shareholder (500,000) (500,000)
Cost of 10,000 shares Class A common stock
held in treasury (26,740) (26,740)
------------ ------------
Total stockholders' equity 6,568,796 6,502,855
------------ ------------
Total liabilities and stockholders' equity $ 17,517,314 $ 17,033,196
------------ ------------
------------ ------------
</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,
-------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Gross premiums earned (Note 2) $ 4,606,940 $ 5,376,987 $ 9,511,264 $ 10,996,011
Ceded premiums earned (Note 2) 2,303,470 2,688,493 4,630,632 5,498,005
------------ ------------ ------------ ------------
Net premiums earned 2,303,470 2,688,494 4,880,632 5,498,006
Third-party administrative services 103,761 79,326 198,790 154,171
Net realized and unrealized investment
gains (losses) 54 (1,377) 360 (2,744)
Net investment income 135,224 128,296 264,507 255,015
Other income 5,998 (2,167) 16,714 (1,952)
------------ ------------ ------------ ------------
Total revenue 2,548,507 2,892,572 5,361,003 5,902,496
------------ ------------ ------------ ------------
Expenses:
Underwriting (Note 2):
Gross claims incurred 2,003,530 3,030,699 4,980,660 5,939,374
Ceded claims incurred 1,001,765 1,515,350 2,490,330 2,969,687
------------ ------------ ------------ ------------
Net claims incurred 1,001,765 1,515,349 2,490,330 2,969,687
------------ ------------ ------------ ------------
Gross commissions incurred 938,509 1,078,092 1,887,456 2,077,118
Ceded commissions incurred 735,041 1,085,768 1,482,436 2,349,633
------------ ------------ ------------ ------------
Net commissions incurred (earned) 203,468 (7,676) 405,020 (272,515)
------------ ------------ ------------ ------------
Total underwriting expenses 1,205,233 1,507,673 2,895,350 2,697,172
General and administrative expenses 1,120,821 1,409,307 2,272,616 2,681,849
------------ ------------ ------------ ------------
Total expenses 2,326,054 2,916,980 5,167,966 5,379,021
------------ ------------ ------------ ------------
Income (loss) before income taxes 222,453 (24,408) 193,037 523,475
Provision for income taxes 120,800 200 126,800 322,900
------------ ------------ ------------ ------------
Net income (loss) 101,653 (24,608) 66,237 200,575
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per common share $ 0.04 ($0.01) $ 0.03 $ 0.08
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
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 30, 1998 (unaudited) and year ended December 31, 1997
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------- Paid-in
Class A Convertible Class B capital
------------------------------------------------ attributed
Number Par Number Par Additional to
of value of value paid-in detachable
Shares $.01 Shares $.01 capital warrants
--------- --------- ------ ----- ---------- ----------
- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 2,580,100 $ 25,801 47,400 $ 474 $5,839,609 $ 150,000
Net income -- -- -- -- --
Net investment gain -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1997 2,580,100 $ 25,801 47,400 $ 474 $5,839,609 $ 150,000
Net income (unaudited) -- -- -- -- -- --
Net investment loss (unaudited) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance - June 30, 1998 (unaudited) 2,580,100 $ 25,801 47,400 $ 474 $5,839,609 $ 150,000
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Accumulated Class A
other Secured common
compre- promissory stock
Retained hensive note held in
earnings income receivable treasury Total
----------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1997 $ 935,665 ($ 27,229) ($ 500,000) ($ 26,740) $ 6,397,580
Net income 100,320 -- -- -- 100,320
Net investment gain -- 4,955 -- -- 4,955
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1997 1,035,985 (22,274) (500,000) (26,740) 6,502,855
Net income (unaudited) 66,237 -- -- -- 66,237
Net investment loss (unaudited) -- (296) -- -- (296)
----------- ----------- ----------- ----------- -----------
Balance - June 30, 1998 (unaudited) $1,102,222 ($22,570) ($500,000) ($26,740) $6,568,796
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</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, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 66,237 $ 200,575
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 23,865 28,559
Amortization of deferred acquisition costs 155,376 140,682
Amortization of discount on surplus note 7,500 7,500
Loss on sale of investments -- 2,519
Deferred income taxes (23,916) 131,961
(Increase) decrease in operating assets:
Premiums receivable (520,400) 522,700
Prepaid and refundable income taxes (113,284) (23,489)
Receivable from related parties (4,368) (2,723)
Other assets (77,450) 176,765
Increase (decrease) in operating liabilities:
Payable to reinsurer 405,169 (5,745)
Claims liabilities (687,750) (793,500)
Unearned premiums 41,800 110,580
Commissions payable 24,955 76,370
Accounts payable and accrued expenses 650,419 454,090
----------- -----------
Net cash provided by (used in) operating activities (51,847) 1,026,844
----------- -----------
Cash flows from investing activities:
Furniture and equipment acquired (9,999) (27,987)
Proceeds from sale of investments 5,832 60,142
Purchases of investments -- (1,015)
----------- -----------
Net cash provided by (used in) investing activities (4,167) 31,140
----------- -----------
Cash flows from financing activities:
Issuance of Class A common stock -- --
Notes receivable from shareholder, secured -- --
----------- -----------
Net cash provided by financing activities -- --
----------- -----------
Net increase (decrease) in cash and equivalents (56,014) 1,057,984
Cash and equivalents:
Beginning of year 8,296,943 7,076,659
----------- -----------
June 30, $ 8,240,929 $ 8,134,643
----------- -----------
----------- -----------
Supplemental cash flow disclosure:
Cash paid during the period for income taxes $ 263,459 $ 210,617
----------- -----------
----------- -----------
</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
June 30, 1998 and 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared on the basis of
generally accepted accounting principles ("GAAP"). Certain information normally
included in annual financial statements prepared in accordance with GAAP has
been condensed or omittted pursuant to the rules and regulations of the
Securties and Exchange Commission. 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, 1998 and results of operations for the
six-month and three-month periods ended June 30, 1998 and 1997. 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, 1995 to December 31, 1997, Arista Insurance Company ("Arista")
had an agreement with The Cologne Life Reinsurance Company ("Cologne") whereby
Arista ceded, 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.
Effective as of January 1, 1998, Arista entered into a Quota Share Reinsurance
Treaty with The Guardian Life Insurance Company of America ("The Guardian"),
pursuant to which Arista cedes by way of reinsurance, a 50% participation in the
insurance, both for business in force as of January 1, 1998 and for business
written or acquired after January 1, 1998. 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.
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<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
(unaudited)
NOTE 3 - RELATED PARTIES
At June 30, 1998 and December 31, 1997, 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 20.4% 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 $105,000 and
$112,000 in commissions from Arista during the six months ended June 30, 1998
and 1997, respectively. Of this amount, the Agency paid approximately $77,000
during both the six months ended June 30, 1998 and 1997 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 $8,000 and $13,000 for the six months
ended June 30, 1998 and 1997, respectively.
NOTE 4 - NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 (SFAS No. 130) "Reporting Comprehensive
Income". This pronouncement requires entities to make certain
disclosures about all types of income, expenses, gains and
losses arising during the period in addition to net income from
operations. SFAS No. 130 is effective for years beginning after
December 15, 1997.
SFAS No. 130 did not have a material effect on the Company's financial position
or results of operations for the six-month periods ended June 30, 1998 and June
30, 1997.
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<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
(Unaudited)
NOTE 5 - SEGMENT INFORMATION
Adminis-
trative
Insurance Service
Segment Segment Total
------- ------- -----
1998
----
Revenues from outside customers $ 9,511,264 $ 198,790 $ 9,710,054
Major customers $ -- $ -- $ --
Profit and loss $ 189,087 $ 3,950 $ 193,037
1997
----
Revenues from outside customers $10,996,011 $ 154,171 $11,150,182
Major customers $ 891,599 $ -- $ 891,599
Profit and loss $ 515,244 $ 7,231 $ 522,475
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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, 1998 VS.
June 30, 1997 (unaudited)
The Company's after tax income for the first six months of 1998 was
approximately $66,000; the Company's after tax income for the second quarter
ended June 30, 1998 was approximately $102,000. In comparison, for the first six
months of 1997, the Company's net income after taxes was approximately $201,000;
for the second quarter ended June 30, 1997, the Company had a net loss of
approximately $25,000.
Arista's gross premiums earned were approximately $9.5 million and $11.0 million
for the first six months of 1998 and 1997, respectively. Gross premiums earned
for the second quarters of 1998 and 1997 were approximately $4.6 million and
$5.4 million, repectively. This decrease was due to a continuation of the net
loss of covered lives as well as policyholders which included the termination,
effective February 1, 1998, of the Federation of Jewish Philanthropies. The
continuing net loss in covered lives is a function of an increased competition
for experience- rated groups and a lower competitive rate structure for non-
experience-rated groups. Arista expects this trend to continue.
Arista's gross claims incurred for the first six months of 1998 were
approximately $5.0 million, representing 52.4% of the gross premiums earned. For
the first six months of 1997, gross claims incurred were approximately $ 5.9
million, representing 54.0% of gross premiums earned. For the second quarters of
1998
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
and 1997, the gross claims incurred were approximately $2.0 million and $3.0
million, respectively. The reductions in the gross claims incurred were
primarily due to the impacts of a mild winter and our very healthy economy, upon
our disability claim experience. Gross claims incurred includes claim reserves
for unpaid losses, unpaid loss adjustment expenses and statutory 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 operations.
Consolidated investment income for the first six months of 1998 and 1997 was
approximately $265,000 and $255,000, respectively. For the second quarters of
1998 and 1997, consolidated investment income was approximately $135,000 and
$128,000 respec- tively.
Income from third-party administrative services was approximately $199,000 and
$154,000 for the first six months of 1998 and 1997, respectively. For the second
quarter of 1998, such income was approximately $104,000 as compared to
approximately $79,000 for the comparable 1997 period. These increases were
attributable to additional business serviced under Arista's existing third-party
administration agreements.
Arista's gross commissions incurred as a percentage of gross premiums earned
were 19.8% and 18.9% for the first six months of 1998 and 1997, respectively. In
addition, the ratios of gross commissions incurred to gross premiums earned
during the second quarters of 1998 and 1997 were 20.4% and 20.1%, respectively.
The principal reason for these minor changes was an increase in the number of
smaller risks in force, generating an increase in the level of top-of-scale
commissions.
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<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The consolidated general and administrative expenses for the first six months of
1998 and 1997 were approximately $2.3 million and $2.7 million, respectively. Of
this $409,000 decrease, $190,000 was attributable to a reduction in professional
fees and $83,000 to a reduction in employee salaries and benefits due to
terminations. For the second quarter, consolidated general and administrative
expenses were approximately $1,120,000 at June 30, 1998 and approximately
$1,409,000 at June 30, 1997. Reductions in professional fees and in employee
salaries and benefits also contributed to this quarterly decrease.
LIQUIDITY AND CAPITAL RESOURCES
Retained earnings increased from $1,035,985 at December 31, 1997 to
$1,102,222 at June 30, 1998 as a result of the Company's net income.
Management believes that Arista's statutory capital and surplus of approximately
$7.0 million at June 30, 1998 is sufficient to support its existing level of
annualized premiums.
Management does not believe that the year 2000 issue, which has received
wide-spread publicity, will have a material impact on the Company.
-13-
<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
-14-
<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)
July 30, 1998
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,240,929
<SECURITIES> 2,633,660
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 907,461
<DEPRECIATION> 807,664
<TOTAL-ASSETS> 17,517,314
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 26,275
<OTHER-SE> 6,542,521
<TOTAL-LIABILITY-AND-EQUITY> 6,568,796
<SALES> 4,880,632
<TOTAL-REVENUES> 9,511,264
<CGS> 0
<TOTAL-COSTS> 5,167,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 193,037
<INCOME-TAX> 126,800
<INCOME-CONTINUING> 66,237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,237
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
