The Registrant's and Arista's principal executive offices are located at 116 John Street, New York, New York 10038. The offices contain approximately 16,100 square feet. On January 9, 1995, effective on or about June 1, 1995, the Company entered into a five year lease for its principal executive office space at an average rent over the term of the lease of approximately $210,000 per year, exclusive of electricity. The Company is currently in the process of negotiating an extension of the lease.
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles, which differ in certain respects from those followed in financial statements prepared for regulatory authorities. See Notes to the accompanying Consolidated Financial Statements.
Item 6. CONSOLIDATED SELECTED FINANCIAL DATA (In Thousands, Except Per Share Data) - --------------------------------------------------------------------------------
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 and 1997 to distinguish continuing operating results from its TPA services from its discontinued underwriting operations.
Consolidated revenues during the years ended December 31, 1999 and 1998 were $3,505,816 and $1,131,734 respectively, from the Company's continuing third party administrative service operations. During the year ended December 31, 1999, the Company operated solely as a full-time third party administrative service provider (a "Provider"). In comparison, the Company operated as a Provider during the last six months of the year ended December 31, 1998 and as a part-time Provider as well as a full-time New York State statutory disability benefits insurer during the first six months of the year ended December 31, 1998. Revenues more than tripled, primarily due to the fees earned on the primary client's major acquisitions, which the Company now administers.
Consolidated investment income in 1999 was $157,527 as compared to $543,856 in 1998. The decrease in 1999 was due to the elimination of investment income earned on the proceeds received by Arista from the issuance of a $3,000,000 surplus note that was repaid at the end of 1998 together with Arista's disposal of most of its investments in 1999 in order to pay extraordinary dividends to the Company. This disposal of such investments in 1999 resulted in a net realized loss of $10,410.
Consolidated general and administrative expenses for 1999 were $3,658,773 as compared to such expenses from continuing operations of $2,427,321 for 1998. In addition, in 1998 the Company incurred consolidated general and administrative expenses from discontinued operations of $2,272,616 and from disposal of discontinued operations of $2,052,596. In total, the consolidated general and administrative expenses for 1998 from all operations were $6,752,533.
The consolidated net income for the year 1998 was $432,795 ($0.17 per share) consisting of a loss from continuing operations of $238,254 ($0.09 per share), and a gain on disposal of discontinued operations of $671,049 ($0.26 per share). This is compared to consolidated net income in 1997 of $100,220 ($0.04 per share), which consisted of $79,076 ($0.03 per share) from continuing operations, and $21,244 ($0.01 per share) from discontinued operations.
Consolidated general and administrative expenses for 1998 from continuing operations were $2,427,321 compared to $740,000 in 1997. The increase in 1998 was due to additional costs associated with operating the TPA on a full-time basis after July 1, 1998 compared to a part-time basis in 1997. Operating expenses associated with the Company's discontinued operations were $5,435,604 in 1998 compared to $10,018,285 in 1997.
At December 31, 1999, the Company had cash and cash equivalents aggregating $206,079 compared to $6,330,909 at December 31, 1998. The decrease in 1999 was due principally to the delivery of a partial liquidating distribution to the Registrant's stockholders.
The Company considered the impact of Year 2000 issues on its computer systems and applications and developed a remediation plan. Conversion activities were completed by the middle of 1999. All expenses in connection with the Year 2000 compliance project were charged to operations. Expenditures in 1998 aggregated $20,500 and the Company incurred additional costs of less than $1,000 in 1999 to complete the project.
The response to this item is submitted in Part IV of this Form 10-K on pages to S-6.