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, 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 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 14, 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.
-1-
<PAGE>
ARISTA INVESTORS CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31,
1998 (Unaudited) and December 31, 1997 3
Consolidated Statements of Operations
(Unaudited) for the three months ended
March 31, 1998 and 1997 5
Consolidated Statements of Changes in Stock-
holders' Equity for the three months ended
March 31, 1998 (Unaudited) and the year
ended December 31, 1997 6
Consolidated Statements of Cash Flows
(Unaudited) for the three months ended
March 31, 1998 and 1997 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 13
Signatures 14
-2-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
Investments:
Held-to-maturity securities:
Bonds and long-term U.S. Treasury
obligations at amortized cost (market
value $2,687,361 at March 31, 1998 and
$2,632,904 at December 31, 1997) $ 2,627,357 $ 2,630,453
Available-for-sale securities:
Redeemable preferred stocks, at market value
(amortized cost of $31,524 at March 31,
1998 and December 31, 1997) 8,436 9,250
Trading securities, at market value (cost of $279
at March 31, 1998 and December 31, 1997) 391 85
----------- -----------
Total investments 2,636,184 2,639,788
Cash and equivalents 8,136,431 8,296,943
Premiums receivable 3,282,500 2,978,600
Deferred policy acquisition costs, net 407,872 484,398
Receivables from related parties 457,587 443,182
Furniture and equipment, at cost, net of
accumulated depreciation of $795,667 at March
31, 1998 and $783,799 at December 31, 1997 106,980 113,663
Prepaid and refundable income taxes 785,261 710,050
Other assets 1,477,772 1,366,572
----------- -----------
Total assets $17,290,587 $17,033,196
=========== ===========
(Continued)
-3-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to reinsurer $ 131,049 $ 158,721
Claims liabilities 3,267,450 3,391,950
Unearned premiums 1,539,200 1,464,800
Commissions payable 746,119 729,912
Accounts payable and accrued expenses 2,057,695 1,627,187
Deferred income taxes, net 198,699 277,771
Surplus note payable, net 2,883,750 2,880,000
------------ ------------
Total liabilities 10,823,962 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 1,000,569 1,035,985
Net unrealized investment loss (23,088) (22,274)
------------ ------------
6,993,365 7,029,595
Secured promissory note from shareholder (500,000) (500,000)
Less 10,000 shares Class A common stock held in
treasury (26,740) (26,740)
------------ ------------
Total stockholders' equity 6,466,625 6,502,855
------------ ------------
Total liabilites and stockholders' equity $ 17,290,587 $ 17,033,196
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
Gross premiums earned (Note 2) $ 4,904,324 $ 5,619,024
Ceded premiums earned (Note 2) 2,327,162 2,809,512
----------- -----------
Net premiums earned 2,577,162 2,809,512
Third-party administrative services 95,029 74,845
Net realized investment losses 0 (1,312)
Net unrealized investment gains (losses) 306 (55)
Net investment income 129,283 126,719
Other income 10,716 215
----------- -----------
Total revenue 2,812,496 3,009,924
Expenses:
Underwriting:
Gross claims incurred (Note 2) 2,977,130 2,908,675
Ceded claims incurred (Note 2) 1,488,565 1,454,337
----------- -----------
Net claims incurred 1,488,565 1,454,338
----------- -----------
Gross commissions incurred (Note 2) 948,947 999,026
Ceded commissions incurred (Note 2) 747,395 1,263,865
----------- -----------
Net commissions incurred (benefit) 201,552 (264,839)
----------- -----------
Total underwriting expenses 1,690,117 1,189,499
General and administrative expenses 1,151,795 1,272,542
----------- -----------
Total expenses 2,841,912 2,462,041
----------- -----------
Income (loss) before income tax provision (benefit) (29,416) 547,883
Net income tax provision 6,000 322,700
----------- -----------
Net income (loss) ($ 35,416) $ 225,183
=========== ===========
Net income (loss) per common share ($ 0.01) $ 0.09
=========== ===========
Weighted average number of common shares 2,617,500 2,617,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended March 31, 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 loss (unaudited) -- -- -- -- -- --
Net investment loss (unaudited) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance - March 31, 1997 (unaudited) 2,580,100 $ 25,801 47,400 $ 474 $5,839,609 $ 150,000
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Class A
common
Net stock
unrealized Secured held in
gain (loss) promissory treasury
Retained on note (10,000
earnings investments receivable shares) 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 loss (unaudited) (35,416) -- -- -- (35,416)
Net investment loss (unaudited) -- (814) -- -- (814)
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1997 (unaudited) $ 1,000,569 ($ 23,088) ($ 500,000) ($ 26,740) $ 6,466,625
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 35,416) $ 225,183
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation 11,868 14,160
Amortization of deferred acquisition costs 76,526 62,126
Amortization of discount on surplus note 3,750 3,750
Loss on sale of investments 0 1,312
Deferred income taxes (79,072) 165,549
Unrealized (gain) loss on trading securities (306) 55
(Increase) decrease in operating assets:
Premiums receivable (303,900) 318,100
Prepaid and refundable income taxes (75,211) 45,030
Receivable from related parties (14,405) 0
Other assets (111,200) (49,198)
Increase (decrease) in operating liabilities:
Payable to reinsurer (27,672) 2,785
Claims liabilities (124,500) (508,500)
Unearned premiums 74,400 272,350
Commissions payable 16,207 41,506
Accounts payable and accrued expenses 430,508 235,099
----------- -----------
Net cash provided by (used in) operating activities (158,423) 829,307
----------- -----------
Cash flows from investing activities:
Furniture and equipment acquired (5,185) (27,987)
Proceeds from sales of securities and amortization of premiums 3,096 28,136
Purchases of investments -- --
Payments and costs associated with acquired business -- --
----------- -----------
Net cash provided by (used in) investing activities (2,089) 149
----------- -----------
Increase (decrease) in cash and equivalents (160,512) 829,456
Cash and equivalents:
Beginning of year 8,296,943 7,076,659
----------- -----------
March 31, $ 8,136,431 $ 7,906,115
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for income taxes $ 160,316 $ 108,718
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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"). 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, 1998 and results of operations for
the three-month periods ended March 31, 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 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 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.
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 of Arista in the event that the reinsurer is unable to meet
the obligations assumed under the reinsurance agreement.
-8-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1996
(unaudited)
Note 3 - Related parties
At March 31, 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 (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 more than 350 general agents of
Arista. The Agency received approximately $55,000 and $58,000 in commissions
from Arista during the three months ended March 31, 1998 and 1997, respectively.
Of this amount, the Agency paid approximately $34,000 and $40,000 during the
three months ended March 31, 1998 and 1997, 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 $4,000 and $7,000 during the three months ended March
31, 1998 and 1997, respectively.
-9-
<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
(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 loss for the first quarter of 1998 was approximately $35,000
($-0.01 per share) compared with a net profit of approximately $225,000 ($0.09
per share) for the first quarter of 1997. The loss, before provision for income
taxes, was approximately $29,000 for the first quarter of 1998 as compared to a
profit, before provision for income taxes, of approximately $548,000.
Arista's gross premiums earned were $4.9 million for the first quarter of 1998
as compared to gross premiums earned of $5.6 million for the first quarter of
1997. This decrease was due to Arista's continued net loss of covered lives and
policyholders which included the termination of the Federation of Jewish
Philanthropies, effective February 1, 1998. The continuing net loss in covered
lives is a function of 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 three months of 1998 were
approximately $3.0 million, representing 60.7% of gross premiums earned. For the
first three months of 1997, gross claims incurred were approximately $2.9
million, representing 51.8% of the gross premiums earned. The principal reason
for this change was the reduction of the gross claims liabilities of
approximately $500,000, representing 8.9% of gross premiums earned, during the
first quarter of 1997. Gross
-10-
<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
(Unaudited)
claims incurred includes claims liabilities 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 operations.
Arista's gross commissions incurred as a percentage of gross premiums earned was
19.4% for the first quarter of 1998, as compared to 17.8% for the comparable
1997 period.
Consolidated investment income for the first three months of 1998 and 1997 was
approximately $129,000 and $126,000, respectively. In addition, Arista had
insignificant net realized investment gains and net realized and unrealized
investment losses during the first quarters of 1998 and 1997, respectively.
Income from Third-party Administrative services was approximately $95,000 for
the first three months of 1998 as compared to approximately $75,000 for the
comparable 1997 period. Other income was approximately $11,000 for the first
quarter of 1998.
Consolidated general and administrative expenses decreased from approximately
$1,273,000 for the first quarter of 1997 to approximately $1,152,000 for the
comparable 1998 period. Of this $121,000 decrease in general and administrative
expenses, approximately $73,000 was attributable to a reduction in professional
fees.
Liquidity and Capital Resources
Retained earnings decreased from $1,035,985 at December 31, 1997 to $1,000,569
at March 31, 1998 as a result of the Company's net loss.
-11-
<PAGE>
ARISTA INVESTORS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
(Unaudited)
Management believes that Arista's statutory capital and surplus of approximately
$6.6 million at March 31, 1998 is sufficient to support its current annual
premium level.
Effective as of January 1, 1998, in connection with Arista's entering into a new
reinsurance arrangement with The Guardian, Arista terminated its reinsurance
agreement with Cologne. Pursuant to such termination, the principal balance of
(and any accrued but unpaid interest on) a surplus note in the amount of
$3,000,000, issued by Arista to The Cologne Life Underwriting Management
Company), effective in December 1995, will be repaid as soon as practicable,
subject to prior regulatory approval.
-12-
<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
-------------------------------------
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, 1998
-14-
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,627,357
<DEBT-MARKET-VALUE> 2,687,361
<EQUITIES> 8,436
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,636,184
<CASH> 8,136,431
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 407,872
<TOTAL-ASSETS> 17,028,639
<POLICY-LOSSES> 3,267,450
<UNEARNED-PREMIUMS> 1,539,200
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,883,750
0
0
<COMMON> 26,275
<OTHER-SE> 6,440,350
<TOTAL-LIABILITY-AND-EQUITY> 17,028,639
4,904,324
<INVESTMENT-INCOME> 129,283
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 105,745
<BENEFITS> 2,977,130
<UNDERWRITING-AMORTIZATION> 76,525
<UNDERWRITING-OTHER> 1,075,270
<INCOME-PRETAX> (29,416)
<INCOME-TAX> 6,000
<INCOME-CONTINUING> (35,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,416)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<RESERVE-OPEN> 3,391,950
<PROVISION-CURRENT> 1,886,145
<PROVISION-PRIOR> 1,090,985
<PAYMENTS-CURRENT> (781,840)
<PAYMENTS-PRIOR> (2,319,790)
<RESERVE-CLOSE> 3,267,450
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
