<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 SEPTEMBER 30, 2000
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 9, 2000 was 2,570,100 shares of
Class A Common Stock, $0.01 par value.
-1-
<PAGE>
ARISTA INVESTORS CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements:
Consolidated Balance sheets at September 30,
2000(Unaudited) and December 31, 1999 3
Consolidated Statements of Income and
Comprehensive Income (Unaudited) for
the nine months ended September 30, 2000
and 1999 5
Consolidated Statements of Stockholders'
Equity for the nine months ended September
30, 2000(Unaudited) and the year ended
December 31, 1999 6
Consolidated Statements of Cash Flows
(Unaudited)for the nine months ended September
30, 2000 and 1999 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 13
PART II. OTHER INFORMATION
Item 1 through Item 6 14
Signatures 15
</TABLE>
-2-
<PAGE>
ARTISTA INVESTORS CORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Investments:
Held-to-maturity securities:
Bonds and long-term U.S. Treasury
obligations at amortized cost (market value
$175,000 at December 31, 1999) $ 0 $ 175,112
----------- -----------
Total investments 0 175,112
Cash and equivalents 546,628 206,079
Deferred acquisition costs, net 105,763 134,608
Receivables from related parties 444,930 422,919
Receivables from third party administration 667,845 1,074,139
Furniture and equipment, at cost, net of
accumulated depreciation of $885,237 at September 30,
2000 and $871,094 at December 31, 1999 34,776 44,849
Prepaid and refundable income taxes 83,277 139,904
Other assets 275,373 262,986
----------- -----------
Total assets $ 2,158,592 $ 2,460,596
=========== ===========
</TABLE>
(Continued)
-3-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses $ 388,860 $ 617,909
Payable to related parties 450,000 800,000
-------------- ----------------
Total liabilities 838,860 1,417,909
-------------- ----------------
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
Retained earnings 1,320,671 1,043,626
-------------- ----------------
1,346,472 1,069,427
Less cost of 10,000 shares Class A common stock
held in treasury (26,740) (26,740)
-------------- ----------------
Total stockholders' equity 1,319,732 1,042,687
-------------- ----------------
Total liabilities and stockholders' equity $2,158,592 $2,460,596
============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Third-party administrative services $943,075 $891,626 $2,944,957 $2,523,390
Net realized investment losses -10,602
Net unrealized investment gains 0 0 0 192
Net investment income 9,439 6,671 28,394 141,793
Other income 2,539 (6,066) 9,622 2,090
-------- -------- ---------- ---------
Total revenue 955,053 892,231 2,982,973 2,656,863
Expenses:
General and administrative expenses 922,130 884,526 2,626,578 2,734,781
-------- -------- ---------- ---------
Income (loss) from operations before income tax
provision (benefit) 32,923 7,705 356,395 (77,918)
Income taxes:
Provision for income taxes (benefit) 6,350 6,888 79,350 (74,397)
-------- -------- ---------- ---------
Net income (loss) 26,573 817 277,045 (3,521)
-------- -------- ---------- ---------
Other comprehensive income:
Unrealized gain (loss) on securities during period 0 0 0 0
Reclassification of losses included in revenue 0 0 0 29,822
Income tax effect 0 0 0 (7,334)
-------- -------- ---------- ---------
Other comprehensive income, net 0 0 0 22,488
-------- -------- ---------- ---------
Total comprehensive income (loss) 26,573 817 277,045 18,967
======== ======== ========== =========
Net income (loss) per common share:
Basic and diluted $0.01 $0.00 $0.11 $0.00
======== ======== ========== =========
Weighted average number of common shares:
Basic and diluted 2,570,100 2,570,100 2,570,100 2,570,100
========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 2000 (unaudited) and year ended
December 31, 1999
<TABLE>
<CAPTION>
Class A Convertible Class B
------------------------------ -----------------------
Number Par Number Par Additional
of value of value paid-in Retained
Shares $.01 Shares $.01 capital earnings
------------ -------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1999 2,580,100 $25,801 47,400 $474 $5,989,609 $ 1,488,780
Net loss - - - - - (37,567)
Acquisiton of Convertible Class B
common stock - - - - - -
Retirement of Class B common stock - - (47,400) (474) -258,286 (387,587)
Partial liquidation distribution - - - - (5,731,323) -
Unrealized securities loss included
in income - - - - - -
------------ -------- ---------- ---------- ------------ -----------
Balance - December 31, 1999 2,580,100 $25,801 0 $0 $0 1,043,626
Net income - - - - - 277,045
------------ -------- ---------- ---------- ------------ -----------
Balance - September 30, 2000
(unaudited) 2,580,100 $25,801 0 $0 $0 $ 1,320,671
============ ======== ========== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Secured Class A Convertible
other promissory common Class B
comprehensive note stock held common
income receivable in treasury stock Total
------------- -------------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1999 ($22,488) ($500,000) ($26,740) $0 $6,935,436
Net loss - - - - (37,567)
Acquisiton of Convertible Class B common stock - 500,000 - (646,347) (146,347)
Retirement of Class B common stock - - - 646,347 0
Partial liquidation distribution - - - - (5,731,323)
Unrealized securities loss included in income 22,488 - - - 22,488
---------- ---------- ---------- --------- --------
Balance - December 31, 1999 0 0 (26,740) 0 1,042,687
Net income - - - - 277,045
---------- ---------- ---------- --------- --------
Balance - September 30, 2000 (unaudited) 0 0 ($26,740) 0 $1,319,732
========== ========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
ARISTA INVESTORS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 277,045 $ (3,521)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 14,143 35,910
Amortization of deferred acquisition costs 28,845 0
Loss on sale of investments 0 10,602
Deferred income taxes/(benefit) 0 761,246
(Increase) decrease in operating assets:
Receivables from related parties (22,011) (41,343)
Receivables from third party administration 406,294 (1,674,455)
Prepaid and refundable income taxes 56,627 (224,242)
Prepaid expenses 0 23,842
Other assets (12,387) 12,618
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (229,049) 177,788
Payable to related parties (350,000) (901,402)
Commissions and fees payable 0 (43,841)
Income taxes payable, net 0 (580,319)
------------- --------------
Net cash provided by (used in) operating activities 169,507 (2,447,117)
------------- --------------
Cash flows from investing activities:
Capital expenditures (4,070) (11,753)
Proceeds from sale of investments 175,112 2,458,383
------------- --------------
Net cash provided by (used in) investing activities 171,042 2,446,630
------------- --------------
Cash flows from financing activities:
Exercise option to acquire Class B common stock 0 (146,348)
Partial liquidating distribution 0 (5,731,323)
------------- --------------
Net cash provided by (used in) financing activities 0 (5,877,671)
------------- --------------
Increase (decrease) in cash and equivalents 340,549 (5,878,158)
Cash and equivalents:
Beginning of period 206,079 6,330,909
------------- --------------
September 30, $ 546,628 $ 452,751
============= ==============
Supplemental cash flow disclosure:
Cash paid during the period for income taxes $ 12,423 $ 67,772
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(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 omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the management of Arista
Investors Corp. (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, 2000 and results of operations
for the nine-month and three-month periods ended September 30, 2000 and 1999.
The operating results for the periods are not necessarily indicative of the
results to be expected for the entire year.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Registrant and its wholly owned subsidiary, Arista Insurance Company
("Arista"), sometimes hereinafter individually or collectively referred to as
the "Company", entered into an Assumption Reinsurance Agreement, dated September
23, 1998 (the "Treaty") with The Guardian Life Insurance Company of America
("The Guardian"). Pursuant to this Treaty, all of Arista's liabilities under
each and every policy of New York State and voluntary disability benefits
insurance, (collectively the "Insurance"), were ceded to The Guardian. The
cession of the Insurance to The Guardian, deemed effective July 1, 1998, was
consummated on November 12, 1998. Arista discontinued writing the Insurance
effective November 12, 1998.
From January 1, 1998 to June 30, 1998, Arista had a Quota Share Reinsurance
Treaty with The Guardian, pursuant to which Arista ceded 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.
-8-
<PAGE>
ARISTA INVESTORS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
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.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
At September 30, 2000 and December 31, 1999, Bernard Kooper, Chairman of the
Boards of Directors of the Company and Arista and a Director of The Collection
Group, Inc., beneficially owns 20.4% of the outstanding shares of Class A common
stock, par value $.01 per share (the "Class A Common Stock"). At December 31,
1998 Mr. Kooper also owned 100% of the outstanding shares of Class B common
stock, par value $.01 per share (the "Class B Common Stock"). On May 4, 1999,
the Class A Directors of the Board of Directors of the Company exercised the
option to acquire the 47,400 shares of Class B Common Stock owned by Mr. Kooper.
Upon the exercise of the option, Mr. Kooper received $146,347.50, representing
the fair market value of the Registrant's Class A Common Stock, and the
cancellation of the $500,000.00 outstanding principal amount under the secured
promissory note.
Mr. Kooper is also the owner of Bernard Kooper Life Agency, Inc. (the "Agency"),
one of the general agents marketing the Insurance. During the nine months ended
September 30, 2000 and 1999, the Agency received approximately $123,000 and
$141,000, respectively, in commissions and fees based on the premiums collected
under the Treaty's Insurance. Of this amount, the Agency paid approximately
$91,000 and $105,000, respectively, during the nine months ended September 30,
2000 and 1999 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 Arista by the Agency was approximately $11,000 and
$16,000 for the nine months ended September 30, 2000 and 1999, respectively.
-9-
<PAGE>
ARISTA INVESTORS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
NOTE 4 - NEW ACCOUNTING STANDARDS
In December 1999, the SEC Staff issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue recognition in Financial Statements," which requires all registrants to
comply with certain criteria for recognition of revenues in financial
statements. In March 2000, the SEC Staff issued SAB No. 101A, which delayed the
implementation of SAB No. 101 until after March 2000. In June 2000, the SEC
Staff issued SAB No. 101B, which further delayed the implementation date until
the fourth quarter of fiscal years beginning after December 15, 1999.
NOTE 5 - THIRD PARTY ADMINISTRATION
The Registrant entered into an Administrative Services Agreement dated September
23, 1998 (the "TPA Agreement") with The Guardian. The TPA Agreement was
consummated on November 12, 1998 and deemed effective as of July 1, 1998. As a
third party administrator under the TPA Agreement, the Registrant performs
various services relating to the Insurance underwritten by The Guardian,
including, but not limited to pricing of risk, underwriting new and renewal
business, investigation, and calculation and payment of claims. In addition, the
Registrant acts as a third party administrator for the temporary disability
insurance book of business of Hartford Life and Health Insurance Company. Until
June 30, 2000, the Registrant acted as a third party administrator for the
statutory disability benefits book of business of the United States Life
Insurance Company in the City of New York. Previously, Arista acted as the third
party administrator for these three books of business.
-10-
<PAGE>
ARISTA INVESTORS CORP
Item 2. 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
inother sections herein.
RESULTS OF OPERATIONS
Nine-Month And Three-Month Periods Ended September 30, 2000 vs.
SEPTEMBER 30, 1999 (UNAUDITED)
---------------------------------------------------------------
Consolidated revenues from third-party administrative service operations during
the nine months ended September 30, 2000 and 1999 were approximately $2,945,000
and $2,523,000, respectively. For the third quarters of 2000 and 1999, such
revenue was approximately $943,000 and $892,000, respectively. The increase in
revenues was due to the Company's administration of additional books of
disability benefits insurance business, which were assumed by The Guardian
effective in 1999.
Consolidated total revenue from operations for the first nine months of 2000 was
approximately $2,983,000, resulting in net income of approximately $277,000.
This compares to total revenue of approximately $2,657,000 and a net loss of
approximately $4,000 for the same period of 1999. For the third quarters of 2000
and 1999, the consolidated total revenue was approximately $955,000 and
$892,000, respectively. The net income for the third quarter of 2000 was
approximately $27,000 as compared to net income of approximately $1,000 for the
same period of 1999. The changes in net income for the first nine months of 2000
and the third quarter of 2000 when compared to the same periods of 1999 were due
to increases in revenue from third-party administrative services.
-11-
<PAGE>
ARISTA INVESTORS CORP.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Consolidated investment income for the first nine months of 2000 and 1999 was
approximately $28,000 and $142,000, respectively. The decrease during the first
nine months of 2000 was attributable to lower invested assets resulting from the
Company's payment of a partial liquidating distribution of $2.23 per share to
stockholders of record on May 19, 2000. For the third quarters of 2000 and 1999,
consolidated investment income was approximately $9,000 and $7,000,
respectively.
The consolidated general and administrative expenses for the first nine months
of 2000 and 1999 were approximately $2.6 million and $2.7 million, respectively.
This decrease of approximately $100,000 was attributed to decreases of $157,000
in professional fees and $31,000 in interest expenses, offset by increases of
$39,000 in salaries and employee benefits, and $29,000 in amortization of
deferred acquisition costs. Consolidated general and administrative expenses
increased slightly from approximately $885,000 for the third quarter of 1999 to
approximately $922,000 for the comparable period of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Retained earnings increased from $1,042,687 at December 31, 1999 to $1,293,159
at September 30, 2000 as a result of the Company's net income.
Since the consummation of the cession of Arista's business to The Guardian,
Arista has reduced its capital and paid-in surplus to the minimum amount
permitted by the New York State Insurance Department and is actively seeking a
buyer of Arista's charter and license, assets which are carried net of full
amortization the accompanying balance sheet.
INFLATION AND SEASONALITY
The Company does not anticipate that inflation will significantly impact its
business nor does it believe that its business is seasonal.
-12-
<PAGE>
ARISTA INVESTORS CORP.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk encompasses liquidity risk and price risk, both of which arise
principally in transactions involving market-risk sensitive instruments. The
Company's operations do not involve such instruments.
-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/ STANLEY S. MANDEL
---------------------------------------
STANLEY S. MANDEL, President and
Chief Executive Officer (principal
executive officer)
BY: /s/ SUSAN J. HALL
---------------------------------------
SUSAN J. HALL, Senior Vice President
and Treasurer (principal financial
and accounting officer)
November 13, 2000
-15-
