Arista provides certain office services to Bernard Kooper Life Agency, a life and health insurance agency owned by Bernard Kooper, the Chairman of the Board of the Company. The Bernard Kooper Life Agency reimburses Arista for the cost of these services.
Prior to July 1, 1998, the Company, through its wholly-owned subsidiary, Arista Insurance Company, operated principally as an underwriter of New York State disability insurance to some 23,000 policyholders and 229,000 covered lives in the New York Metropolitan Area. In November 1998, effective July 1, 1998, the Company ceded its disability insurance underwriting operations to The Guardian pursuant to the Treaty and concurrently, the Registrant entered into the TPA Agreement under which the Company performs various functions as an independent administrator for all disability policies ceded to The Guardian and for other New York State statutory disability policies issued by The Guardian and other companies (the "TPA services").
Pursuant to the terms of the cession of the insurance operations, the Company received a fee of 18% of the last twelve months' adjusted earned premium, plus the proceeds from the assumption of the due premium receivables at the Effective Date over all unpaid claim reserves, unearned premium liability reserves, claim expense reserves and GAAP assessment reserves assumed by The Guardian. These transactions significantly changed the Company's financial condition and results of operations for 1998. Accordingly, the Company reformatted its consolidated statement of income and comprehensive income for 1998, 1997 and 1996 to distinguish continuing operating results from its TPA services from its discontinued underwriting operations.
Consolidated investment income in 1998 was $543,856 compared to $513,913 in 1997. This increase was due mainly to the Company's improved average annual yield on total investments.
The Company's net income for the year 1997 was $100,320 ($0.04 per share), as compared with a net loss of $1,175,863 (approximately $0.51 per share as restated) for 1996. Income before provision for income taxes was $493,068 in 1997, as compared with a loss before provision for income taxes of $1,649,525 for 1996. The Company's loss in 1996 included $757,350 attributable to additional compensation expenses incurred from the exercise of warrants and options during that year. The current operations for the year 1997 included a reduction in gross claims liabilities of $960,000, or 4.6% of gross premiums earned.
Consolidated investment income for 1997 was $513,913, representing an increase of $73,374, due mainly to a small increase in the Company's average annual yield on total investments. In addition, Arista had insignificant net realized and unrealized investment losses for 1997 and 1996.
Arista's gross commissions incurred for 1997 were approximately $3.9 million as compared with approximately $4.2 million for 1996.
The consolidated general and administrative expenses for the years 1997 and 1996 were approximately $4.7 million and $5.7 million, respectively. This decrease was due principally to the additional compensation expenses incurred in 1996 from the exercise of warrants and options of $757,350.
The Company's financial condition remains strong, despite a large reduction in assets and liabilities at December 31, 1998 compared to December 31, 1997. These reductions pertain entirely to the cession of the Company's insurance underwriting operation to The Guardian in 1998.
The Company does not anticipate that inflation will significantly impact its business not does it believe that its business is seasonal.
The response to this item is submitted in Part IV of this Form 10-K on page to S-7.