U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____ .
Commission File Number 000-25253
SUMMIT LIFE CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1448244
-------- ----------
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
3021 Epperly Dr., P.O. Box 15808, Oklahoma City, Oklahoma 73155
---------------------------------------------------------------
(Address of principal executive offices)
(405) 677-0781
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 number of shares outstanding of the Issuer's Common Stock, $.01 par value,
as of August 14, 1999 was 2,248,605.
Transitional Small Business Disclosure Format (check one): Yes No X
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FORM 10-QSB
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 (unaudited) and
December 31, 1998........................................................ 3
Consolidated Statements of Operation - Three months and Six months ended
June 30, 1999 and 1998 (unaudited)....................................... 5
Consolidated Statement of Stockholders' Equity - Six months ended
June 30, 1999 (unaudited)................................................ 6
Condensed Consolidated Statement of Cash Flows - Six months ended
June 30, 1999 and 1998 (unaudited)....................................... 7
Notes to Consolidated Financial Statements (unaudited) .................. 8
Item 2. Management's Discussion and Analysis or Plan of Operation................ 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................................ 14
Item 6. Exhibits and Reports on Form 8-K......................................... 14
Signatures....................................................................... 15
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Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
June 30, 1999 December 31, 1998
(Unaudited)
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INVESTMENTS
Debt securities-available for sale $ 3,976,271 $ 4,105,139
Equity securities-available for sale 73,791 46,557
Notes receivable 277,556 1,241,468
Short-term investments -- 156,541
Policy loans 58,549 18,142
Investment real estate, net of depreciation 73,405 73,251
----------- -----------
4,459,572 5,641,098
CASH AND CASH EQUIVALENTS 2,796,187 1,492,196
RECEIVABLES
Accrued investment income 68,203 240,417
Other 9,950 13,156
----------- -----------
78,153 253,573
PROPERTY AND EQUIPMENT-AT COST
Building and improvements 117,294 115,853
Furniture and equipment 128,409 132,811
Automobiles 54,015 45,275
----------- -----------
299,718 293,939
Less accumulated depreciation (70,452) (63,382)
----------- -----------
229,266 230,557
Land 56,000 56,000
----------- -----------
285,266 286,557
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 138,160 106,918
Deferred policy acquisition costs 20,926 20,926
Value of purchased insurance business 621,229 272,465
Land and building held for sale 173,616 176,153
Deferred income taxes -- 31,943
Other 39,006 124,261
----------- -----------
992,937 732,666
----------- -----------
$ 8,612,115 $ 8,406,090
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</TABLE>
The accompanying notes are an integral part of these interim financial
statements
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Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
LIABILITIES
Policy reserves and policyholder funds $ 6,137,261 $ 6,027,599
Accounts payable 4,822 51,061
Accrued liabilities 12,732 209,353
Notes payable 759,834 1,325,247
Deferred income taxes 1,989 --
Other liabilities 30,103 16,000
----------- -----------
6,946,741 7,629,260
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 22,676 20,547
Preferred stock, $.001 par value 5 --
Additional paid-in capital 3,409,219 2,079,661
Common stock of parent held by
subsidiary (95,000) --
Common stock subscribed -- 39,130
Accumulated other comprehensive income (58,515) 25,985
Accumulated deficit (1,613,011) (1,349,363)
Less stock subscriptions receivable -- (39,130)
----------- -----------
1,665,374 776,830
----------- -----------
$ 8,612,115 $ 8,406,090
=========== ===========
The accompanying notes are an integral part of these interim financial
statements
4
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Summit Life Corporation and Subsidiaries
Consolidated Statements of Operation
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
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Revenues
Insurance premiums $ 55,819 $ 32,678 $ 138,991 $ 65,552
Investment income 144,698 136,007 296,597 277,928
Net realized gains (losses)
Other 5,792 5,602 23,932 5,602
----------- ----------- ----------- -----------
206,309 174,510 462,283 350,794
Benefits, losses and expenses
Policy benefits 35,199 42,695 53,371 65,045
Change in policy reserves 106,359 129,551 99,729 95,408
Interest expense 42,234 13,248 70,872 49,956
Taxes, licenses and fees 10,005 7,757 24,163 14,942
Depreciation and amortization 40,187 95,610 96,257 190,406
General, administrative and
other operating expenses 156,627 149,423 392,448 299,921
----------- ----------- ----------- -----------
390,611 438,284 736,840 715,678
----------- ----------- ----------- -----------
Loss from cont. operations
before income taxes (184,302) (263,774) (274,557) (364,884)
Income tax provision (400) -- 757 531
Loss from continuing operations $ (184,702) $ (263,774) $ (273,800) $ (364,353)
Income from operations of discontinued segment (630) 10,570 10,151 23,560
----------- ----------- ----------- -----------
NET LOSS $ (185,332) $ (253,204) $ (263,649) $ (340,793)
=========== =========== =========== ===========
Loss per common share -
Basic and diluted
From continuing operations $ (0.09) (0.13) $ (0.13) $ 0.18)
From discontinued operations -- 0.01 -- 0.01
----------- ----------- ----------- -----------
NET LOSS $ (0.09) $ (0.12) $ (0.13) $ (0.17)
=========== =========== =========== ===========
Weighted average outstanding common shares,
basic and diluted 2,216,464 2,050,519 2,142,485 2,039,890
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these interim financial
statements.
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Summit Life Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
Six Months Ending June 30, 1999
(Unaudited)
Common Stock Preferred Stock
------------ ---------------
Shares Additional
Shares Par Out- Par paid-in
Total Issued Value standing Value capital
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Balance at January 1, 1999 $ 776,830 2,054,735 $ 20,547 -- $ -- $ 2,079,661
Sale of common stock net of offering
expenses of $110,488 708,362 163,770 1,638 -- -- 706,724
Sale of preferred stock 489,200 -- -- 4,892 5 489,195
Collection of stock subscriptions
receivable 39,130 30,100 301 -- -- 38,829
Issuance of common stock of
Parent to subsidiary -- 19,000 190 -- -- 94,810
Comprehensive income
Net loss (263,649) -- -- -- -- --
Other comprehensive income
Unrealized loss on investments (84,500) -- -- -- -- --
-----------
Comprehensive income (348,149)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 $ 1,665,373 2,267,605 $ 22,676 4,892 $ 5 $ 3,409,219
=========== =========== =========== =========== =========== ===========
Accum. Other Common
------------- Stock of
Common Comprehensive Stock Parent Held
stock income Accumulated subscriptions by
subscribed (loss) deficit receivable Subsidiary
---------- ------- ----------- -------------- ----------
Balance at January 1, 1999 $ 39,130 $ 25,985 $(1,349,363) $ (39,130) $ --
Common stock net of offering
expenses of $110,488 -- -- -- -- --
Sale of preferred stock -- -- -- -- --
Collection of stock subscriptions
receivable (39,130) -- -- 39,130 --
Issuance of common stock of
Parent to subsidiary -- -- -- -- (95,000)
Comprehensive income
Net loss -- -- (263,649) -- --
Other comprehensive income
Unrealized loss on investments (84,500) -- -- --
Comprehensive income
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 $ -- $ (58,515) $(1,613,012) $ -- $ (95,000)
=========== =========== =========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these interim financial
statements
6
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Summit Life Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------------------------
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ (276,583) $ (1,050)
Net cash provided by (used in) investing activities 1,351,537 206,748
Net cash provided by (used in) financing activities 229,037 255,152
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,303,991 460,850
Cash and cash equivalents at the beginning of the period 1,492,196 1,293,457
----------- -----------
Cash and cash equivalents at the end of the period $ 2,796,187 $ 1,754,307
=========== ===========
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Summit Life Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month period ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. For further information, refer to the
consolidated annual financial statements and footnotes thereto for the year
ended December 31, 1998.
NOTE B - PURCHASE OF GREAT MIDWEST LIFE INSURANCE COMPANY
On January 13, 1999, the Company acquired 100% of the outstanding common stock
of Great Midwest Life Insurance Company (GMLIC) in a business combination
accounted for as a purchase. GMLIC is primarily engaged in the sale of life
insurance products and is licensed in the state of Texas. The results of
operations of GMLIC are included in the results for the first quarter of 1999.
The total cost of the acquisition was approximately $939,000 consisting of cash
of $607,000 and a promissory note of $332,000 payable in equal installments over
three years.
As a part of the Texas Department of Insurance approval of the acquisition of
GMLIC by the Company, the Company was required to increase the statutory capital
and surplus through a series of transactions which included merging Family
Benefit Life Insurance Company, a wholly owned subsidiary of the Company, with
GMLIC. The Texas Department of Insurance issued final approval of this merger
transaction on April 15, 1999 with an effective date of February 1, 1999.
NOTE C - INITIAL PUBLIC OFFERING
The Company's initial public offering became effective in January 1999 and
closed effective June 30, 1999. Through June 30, 1999, 163,770 shares have been
issued pursuant to this offering, resulting in gross proceeds of approximately
$818,850. Included in the gross proceeds of the offering is approximately
$341,000 (68,141 shares) from certain individuals who previously held notes
payable from the Company. Upon maturity of the notes payable, the individuals
chose to invest in the Company's common stock pursuant to the offering.
NOTE D - PREFERRED STOCK
On April 23, 1999, the Board of Directors approved the issuance of 5,000 shares
of nonvoting Series A Preferred Stock. The Series A Preferred Stock provides for
annual dividends of 10% which are cumulative and for a liquidation preference of
$100 per share. During the second quarter of 1999, the Company issued 4,892
shares of Series A Preferred Stock resulting in gross proceeds of approximately
$489,200. The effect of preferred stock dividends on the loss to common
shareholders was $6,115 for the three months and the six months ended June 30,
1999.
8
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Item 2. Management's Discussion and Analysis or Plan of Operation.
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this Report,
including, without limitation, statements regarding the Company's future
financial position, business strategy, budgets, projected costs and plans and
objectives of Management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate" or "believe" or the negative thereof or variations
thereon or similar terminology. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct. Such
statements are based upon numerous assumptions about future conditions which may
ultimately prove to be inaccurate and actual events and results may materially
differ from anticipated results described in such statements. Important factors
that could cause actual results to differ materially from the Company's
expectations ("cautionary statements") include the risks inherent generally in
the insurance and financial services industries, the impact of competition and
product pricing, changing market conditions, the risks disclosed in the
Company's Annual Report on Form 10-KSB for the Year Ended December 31, 1998
under "ITEM 6--Management's Discussion and Analysis or Plan of Operation," as
well as the risks disclosed in this Report. All subsequent written and oral
forward-looking statements attributable to the Company, or persons acting on its
behalf, are expressly qualified in their entirety by these cautionary
statements. The Company assumes no duty to update or revise its forward-looking
statements based on changes in internal estimates or expectations or otherwise.
As a result, the reader is cautioned not to place reliance on these
forward-looking statements.
General
Although the Company's primary focus is its life insurance operations,
it also provides financing to medical accounts receivable factoring entities.
During the last quarter of 1998, the Company disposed of its mortgage loan
processing operations.
Results of Operations
Discontinued Operations
In December 1998, the Company adopted a plan to sell the mortgage
services segment to a then officer of the Company in exchange for a $10,000 note
receivable. The actual disposal date was January 4, 1999. The assets sold and
liabilities assumed of the mortgage services segment consisted primarily of the
segment's "name", cash, and customer deposits. Operating results of the mortgage
services segment for the three months and six months ended June 30, 1999 and
1998 are shown separately in the consolidated statements of operations included
elsewhere in this Report.
Six Months Ended June 30, 1999 Compared to Six Months ended June 30,
1998
Assets/Liabilities/Stockholders' Equity. Total assets were $8,612,115
at June 30, 1999, compared to $8,406,090 at December 31, 1998, an increase of
2%. The increase was due to the acquisition of Great Midwest Life Insurance
Company ("Great Midwest") in January 1999, continued growth in the sales of the
Company's annuity and life products, as well as the Company's initial public
offering (the "IPO") of common stock and its private placement of preferred
stock. The increases attributable to the Company's IPO and preferred stock sales
were offset partially by debt repayments. See "-Liquidity and Capital
Resources."
Total liabilities (primarily insurance reserves for future policyholder
benefits) were $6,946,741 at June 30, 1999, compared to $7,629,260 at December
31, 1998, a decrease of 9%. The decrease was due primarily to repayment of a
portion of the Company's outstanding debt.
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Total stockholders' equity was $1,665,374 at June 30, 1999, compared to
$776,830 at December 31, 1998, an increase of 114%. The increase was primarily
due to sales of the Company's common stock pursuant to the IPO as well as the
private placement of preferred stock.
Revenue. Revenues attributable to the life insurance segment increased
112% from $65,552 to $138,991 for the six months ended June 30, 1999, compared
to the same period ended June 30, 1998. The increase was due primarily to the
acquisition of Great Midwest, and reflects a shift in the "mix" of insurance
products sold by the Company. Prior to 1998, the Company primarily sold
annuities, the premiums for which are recorded differently than those for
regular life insurance products. Premiums received on deferred annuities and
annuities without life contingencies (i.e., investment contracts) are recorded
as deposits into the policyholder's account balance, rather than as revenues.
Revenues relating to these contracts consist primarily of withdrawal and
administrative charges. Conversely, premiums relating to life insurance policies
are recognized as revenues when received, as are premiums for certain annuities
with life contingencies, including selection of annuity settlement options with
life contingencies.
Investment income increased 6.7%, from $277,928 for the six months
ended June 30, 1998 to $296,597 for the six months ended June 30, 1999,
primarily as a result of the growth of assets.
Costs and Expenses. Total expenses increased 3% from $715,678 to
$736,840 for the six months ended June 30, 1998 and 1999, respectively. Such
increase was primarily attributable to the expenses associated with the
Company's status as a reporting public company, as well as amortization of value
of purchased insurance business relating to Great Midwest and Benefit Capital.
Such amortization is expected to continue, but at reduced levels, over the
premium-paying life of the acquired policies.
Losses. The Company reported a decrease in net loss of 23%, reporting a
net loss of $263,649 for the six months ended June 30, 1999, compared to a net
loss of $340,793 for the six months ended June 30, 1998. The decrease in net
loss was due primarily to the Company's realization of its growth strategy and
continued control of expenses.
The Company's loss per share from continuing operations decreased to
$0.13 per share for the six months ended June 30, 1999, compared to a loss of
$0.18 per share for the six months ended June 30, 1998. Net loss per share for
the comparable periods was $0.13 and $0.17 per share, respectively.
Three Months Ended June 30, 1999 Compared to Three Months ended June 30, 1998
Revenue. Revenues attributable to the life insurance segment increased
170% from $32,678 to $55,819 for the three months ended June 30, 1999, compared
to the same period ended June 30, 1998. The Increase was due primarily to the
acquisition of Great Midwest, and reflects a shift in the "mix" of insurance
products sold by the Company. Prior to 1998, the Company primarily sold
annuities, the premiums for which are recorded differently than those for
regular life insurance products. Premiums received on deferred annuities and
annuities without life contingencies (i.e., investment contracts) are recorded
as deposits into the policyholder's account balance, rather than as revenues.
Revenues relating to these contracts consist primarily of withdrawal and
administrative charges. Conversely, premiums relating to life insurance policies
are recognized as revenues where received, as are premiums for certain annuities
with life contingencies, including selection of annuity settlement options with
life contingencies.
Investment income increased 6.4%, from $136,007 for the three months
ended June 30, 1998 to $144,698 for the three months ended June 30, 1999,
primarily as a result of the growth of assets.
Costs and Expenses. Total expenses decreased 11% from $438,284 to
$390,611 for the three months ended June 30, 1998 and 1999, respectively. Such
decrease was primarily attributable to the reduced amortization expense
associated with Benefit Capital. Management has been successful in reducing
surrenders and conserving existing business resulting in lower amortization
charges as the life of the policies is extended over a longer period of time.
Such amortization is expected to continue, but at reduced levels, over the
premium-paying life of the acquired policies.
Losses. The Company reported a decrease in net loss of 27%, reporting a
net loss of $185,332 for the three months ended June 30, 1999, compared to a net
loss of $253,204 for the three months ended June 30, 1998. The decrease in net
loss was due primarily to the Company's realization of its growth strategy and
continued control of expenses.
The Company's loss per share from continuing operations decreased to
$0.09 per share for the three months ended June 30, 1999, compared to a loss of
$0.13 per share for the three months ended June 30, 1998. Net loss per share for
the comparable periods was $0.09 and $0.12 per share, respectively.
Liquidity and Capital Resources
Liquidity
The principal requirements for liquidity in connection with the
Company's operations are its contractual obligations to policyholders and
annuitants. The Company's contractual obligations include payments of surrender
benefits, contract withdrawals, claims under outstanding insurance policies and
annuities, and policy loans. Payment of surrender benefits is a function of
"persistency," which is the extent to which insurance policies are maintained by
the policyholder. Policyholders sometimes do not pay premiums, thus causing
their policies to lapse, or policyholders may choose to surrender their policies
for their cash surrender value. If actual experience is different from the
initial or acquisition date assumptions, a gain or loss could result. Depending
on the nature of the underlying policy, a lapse or surrender may result in
surrender charge revenue or surrender benefit expense. Such amounts may be less
than, or greater than, unamortized acquisition expenses and/or the related
policy reserves; accordingly, current period earnings may either increase or
decrease. Additionally, policy lapses and surrenders may result in lost future
revenues and profits associated with the policy.
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A significant number of the life insurance policies issued by BCLIC,
the Louisiana life insurance company acquired by the Company in January 1998,
contained a feature which provided that after paying premiums on the policy for
eight years the policyholder could elect to (i) continue paying premiums and the
death benefit coverage would double or (ii) convert to a paid-up policy with the
original death benefit coverage if the cash value and accumulated policy
dividends were sufficient. In response to inquiries from policyholders that had
completed their eighth year of premiums in 1997, BCLIC notified the
policyholders that, because policy dividends had not been paid, the option to
convert to a paid-up policy with the original death benefit was not available
and the only options were to continue paying premiums and receive "double
coverage" or exercise one of the nonforfeiture provisions, i.e., surrender the
policy for its cash surrender value or convert to reduced paid-up or extended
term coverage. Management believes that the nature of BCLIC's notification in
1997 encouraged policy surrender rather than policy continuation, thus resulting
in a large number of policies surrendered. Although the continued surrender or
lapse of BCLIC's policies at a similar or increased rate could have an adverse
effect on the Company's operations, BCLIC is now actively encouraging policy
continuation, and policy surrenders have been reduced to seven surrenders for
the six months ended June 30, 1999, compared to 24 policy surrenders for the six
months ended June 30, 1998.
Capital Resources
Although the Company currently has a $150,000 bank line of credit, it
funds most of its activity directly from cash flow from operations and cash flow
from financing activities, which includes deposits to policyholders' account
balances. The line of credit extends to July 2000, with amounts borrowed
thereunder bearing interest at prime plus .5%. At June 30, 1999, $50,000 was
outstanding under the line of credit and, as of the date of this Report, the
Company has $100,000 available under the credit facility.
Generally, the Company has financed its loans to medical accounts
receivable factoring entities from collateralized notes payable to individuals.
The loans and the notes payable generally had corresponding three-year terms
with interest paid semiannually or allowed to compound. The loans to the medical
accounts receivable factoring entities and the corresponding collateralized
notes payable to individuals matured during April and May 1999 and were
collected and repaid at that time. The Company presently does not intend to
borrow additional funds to finance its loan activities to medical accounts
receivable factoring entities, but will instead conduct any such lending
activities out of cash flow from other sources.
On January 13, 1999, the Company acquired 100% of the outstanding
common stock of Great Midwest. The total cost of the acquisition was
approximately $939,000. Of the purchase price, cash of $607,000 was paid to
seven of eight stockholders with the eighth stockholder receiving a promissory
note for a principal amount of $332,000, payable in three equal annual
installments at an annual interest rate of 6% on the unpaid principal balance.
The Company partially funded the cash portion of the purchase price with a
$350,000 loan from a bank. The loan accrues interest at an index rate plus .5%,
payable monthly, and originally matured on July 9, 1999, at which time the
Company paid $100,000 of the principal amount owed and renewed the balance for a
six-month term maturing January 9, 2000.
On January 11, 1999, a registration statement relating to the Company's
IPO was declared effective by the Securities and Exchange Commission (the
"SEC"). In accordance with the terms of the offering, the Company escrowed
offering proceeds with UMB Oklahoma Bank, National Association, until the
minimum offering of $700,000 had been obtained. As of the date of this Report,
an aggregate of $818,850 has been received by the Company, representing the sale
of 163,770 shares of common stock pursuant to the offering. The Company elected
to terminate the offering on June 30, 1999.
During the second quarter of 1999, the Company issued 4,892 shares of
Series A Preferred Stock in a private placement, resulting in gross proceeds of
approximately $489,200. The Series A Preferred Stock provides for annual
dividends of 10% which are cumulative and for a liquidation preference of $100
per share. The effect of preferred stock dividends on the loss to common
shareholders was $6,115 for the three months and the six months ended June 30,
1999.
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The majority of the net proceeds from the sale of common stock and the
Series A Preferred Stock was utilized to repay outstanding debt of the Company,
including payments on notes payable incurred in connection with the acquisition
of Great Midwest. See "Item 2..Changes in Securities and Use of Proceeds."
Remaining proceeds from the stock sales will allow the Company continue to grow
its asset base while maintaining surplus/liability ratios within acceptable
industry norms. The level of additional activity to be achieved will be
dependent upon the Company's ability to continue to generate income internally
or to generate capital from outside sources.
The Company has made and intends to make substantial expenditures in
connection with its subsidiaries' marketing programs. Historically, the Company
has funded these expenditures from cash flow from operations.
Year 2000 Readiness
The "Year 2000" or "Y2K" problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Many existing computer programs use only two digits to identify a year in date
field. These programs were designed and developed without considering the impact
of the upcoming change in the century. If not corrected, this could result in a
system failure or calculations of erroneous results by or at the year 2000.
The Company purchased its current information technology in 1997 after
extensive research, analysis and compliance testing, and believes that such
system is "Y2K compliant." Additionally, as part of the Company's assessment of
its readiness to manage Year 2000 issues, it has communicated with significant
customers and suppliers to determine the extent to which the Company's
operations are vulnerable to third parties' failure to correct their own Year
2000 issues. Based on the overall assessment performed, the Company is not aware
of any material impact on their systems relating to the transition to the Year
2000. The Company's total cost of Year 2000 related issues is not expected to a
have a material adverse effect on the Company's consolidated results of
operations.
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Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
In January 1999, the Company commenced an initial public offering of
common stock, offering a minimum of 140,000 shares and a maximum of 1,000,000
shares at a public offering price of $5.00 per share. The offering was made
pursuant to the Company's registration statement on Form SB-2 (the "Registration
Statement"), which was declared effective by the SEC (SEC File No. 333-65097) on
January 11, 1999. The Company terminated the offering on June 30, 1999, by
filing a post-effective amendment and deregistering the unsold shares..
As of the date of this Report, an aggregate of $818,850 has been
received by the Company, representing the sale of 163,770 shares of Common Stock
pursuant to the IPO. The aggregate amount of expenses incurred by the Company
through June 30, 1999 in connection with the issuance and distribution of the
shares of Common Stock offered and sold in the IPO to date was approximately
$110,488, consisting of legal, accounting and printing costs. None of such
amounts were paid to underwriters. None of the expenses paid by the Company in
connection with the IPO were paid, directly or indirectly, to directors,
officers, persons owning ten percent or more of the Company's equity securities,
or affiliates of the Company.
At the date of this Report, the net proceeds to the Company from the
IPO, after deducting offering expenses, were approximately $708,362.
As of August 14, 1999, the Company had applied the net proceeds to the
stated uses described in the Registration Statement in the following manner;
repayment of indebtedness related to the acquisition of Great Midwest, $392,000,
repayment of other indebtedness, $100,000, increase the statutory capital and
surplus of subsidiary insurance companies $193,000, recruitment of agents,
$15,000, general corporate purposes, $8,362.
During the second quarter of 1999, the Company issued 4,892 shares of a
newly created class of preferred stock, resulting in gross proceeds of
approximately $489,200. Of such amount, approximately $255,000 of the proceeds
of such stock issuance was used to repay outstanding indebtedness of the
Company, and approximately $115,000 was used to increase the statutory capital
and surplus of subsidiary insurance companies; approximately $119,200 remains
available as working capital. It is the Company's belief that each of the three
individuals to whom the preferred stock was issued was a "sophisticated
investor" within the meaning of Section 4(2) of the Securities Act and that each
such investor had access to information regarding the Company and the proposed
transaction. No sales commissions were paid in connection with the sale of the
preferred stock and the securities were issued in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Name of Exhibit
- -------- ---------------
*4.1 Specimen Certificate of the preferred stock
*4.2 Certificate of Designations of Series A Preferred Stock
*27.1 Financial Data Schedule
* Filed electronically herewith
(b) Reports on Form 8-K: none.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT LIFE CORPORATION
an Oklahoma corporation
Date: August 9, 1999 /s/ Charles L. Smith
------------------------------------------
Charles L. Smith
President and Chief Operating Officer
Date: August 9, 1999 /s/ Quinton L. Hiebert
------------------------------------------
Quinton L. Hiebert
Vice-President and Chief Financial Officer
14
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Name of Exhibit
- ------- ---------------
*4.1 Specimen Certificate of the preferred stock
*4.2 Certificate of Designations of Series A Preferred Stock
*27.1 Financial Data Schedule
* Filed electronically herewith
15
PF-1
SPECIMEN
THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT THE SECURITIES REPRESENTED BY
TO THE COMPLETE DESCRIPTION THIS CERTIFICATE HAVE NOT BEEN
OF THE RIGHTS, POWER REGISTERED UNDER THE SECURITIES
PREFERENCES, PRIVILEGES, AND SUMMIT LIFE ACT OF 1933 OR ANY STATE
RESTRICTIONS GRANTED TO OR SECURITIES ACT. THE SECURITIES
IMPOSED ON SUCH SECURITIES, CORPORATION HAVE BEEN ACQUIRED FOR
AS ESTABLISHED BY A INVESTMENT AND MAY NOT BE SOLD
CERTIFICATE OF DESIGNATIONS OR TRANSFERRED FOR VALUE IN THE
RELATING TO THE SERIES A ABSENCE OF AN EFFECTIVE
CUMULATIVE PREFERRED STOCK, REGISTRATION OF THEM UNDER THE
FILED WITH THE SECRETATY OF SECURITIES ACT OF 1933 AND/OR
STATE OF THE STATE OF ANY APPLICABLE SECURITIES ACT,
OKLAHOMA ON MAY _,1999, AND OR AN OPINION OF COUNSEL
INCORPORATED HERIN BY SATEFACTORY TO THE ISSUER THAT
REFERENCE. A COPY OF SUCH SUCH REGISTRATION IS NOT
CERTIFICATE OF DESIGNATIONS REQUIRED UNDER SUCH ACT OR ACTS.
WILL BE FURNISHED TO ANY
STOCKHOLDER OF THE
CORPORATION ON REQUEST AND
WITHOUT CHARGE AT THE
PRINCIPAL OFFICE OF THE ------
CORPORATION.
CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT
BEEN SET FORTH IN THE CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT
THERETO, OF THE SERIES A CUMULATIVE PREFERRED STOCK (PAR VALUE $.001
PER SHARE)
OF
SUMMIT LIFE CORPORATION
Pursuant to Section 1032 of the General Corporation Law of the State of
Oklahoma, the undersigned hereby certifies that the following resolution was
adopted by the Board of Directors of Summit Life Corporation, an Oklahoma
corporation (the "Company"), pursuant to a duly called meeting of the Board of
Directors on April 23, 1999:
RESOLVED, that pursuant to authority conferred on the Board of
Directors of the Company by its Amended and Restated Certificate of
Incorporation, a series of Preferred Stock, par value $.001 per share, is
created and the designation and amount thereof and the voting powers,
preferences and relative, participating, optional or other special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof, are as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated "Series A Cumulative Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be 5,000 Shares
of Series A Preferred Stock shall have a par value of $.001 per share.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the possible prior and superior rights of the holders of
any shares of preferred stock of the Company ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, each holder of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for that purpose: (i)
semi-annual dividends payable in cash on April 15 and October 15 in each year
(each such date being a "Semi-Annual Dividend Payment Date"), commencing on the
first Semi-Annual Dividend Payment Date after the first issuance of such share
of Series A Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to $5. If the Semi-Annual Dividend Payment Date is a Saturday,
Sunday or legal holiday, then such Semi-Annual Dividend Payment Date shall be
the first immediately preceding calendar day which is not a Saturday, Sunday or
legal holiday.
(B) Dividends shall begin to accrue and shall be cumulative on each
outstanding share of Series A Preferred Stock from the Semi-Annual Dividend
Payment Date next preceding the date of issuance of such share of Series A
Preferred Stock, unless the date of issuance of such share is prior to the
record date for the first Semi-Annual Dividend Payment Date, in which case,
dividends on such share shall begin to accrue from the date of issuance of such
<PAGE>
share, or unless the date of issuance is a Semi-Annual Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a semi-annual dividend and before
such semi-annual Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Semi-Annual Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
shares of Series A Preferred Stock in an amount less than the aggregate amount
of all such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all shares of Series A
Preferred Stock at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 60 days prior to the date fixed for the
payment thereof.
(C) Dividends payable on the Series A Preferred Stock for the initial
dividend period and for any period less than a full semi-annual period, shall be
computed on the basis of a 360-day year of 30-day months.
SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have no voting rights, except as provided by Section 9 hereof or as
may be specifically reserved to such holders by the Oklahoma General Corporation
Act:
SECTION 4. CERTAIN RESTRICTIONS.
(A) Until all accrued and unpaid dividends and distributions, whether
or not declared, on outstanding shares of Series A Preferred Stock shall have
been paid in full, the Company shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of junior stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of parity stock, except dividends paid
ratably on shares of Series A Preferred Stock and shares of all such
parity stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of such Series A Preferred
Stock and all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any junior stock, PROVIDED, HOWEVER, that the
Company may at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of any other junior stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock or any shares of parity stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
2
<PAGE>
SECTION 5. REQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth in the Certificate of
Incorporation of the Company creating a series of Preferred Stock or any similar
shares or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Company, no
distributions shall be made (i) to the holders of shares of junior stock unless
the holders of Series A Preferred Stock shall have received $100 per share plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment. A consolidation or merger
of the Company with or into any other corporation or corporations, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or a sale of all or
substantially all of the assets of the Company, shall be deemed to be a
liquidation, dissolution, or winding up of the Company.
SECTION 7. REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
SECTION 8. RANKING. The shares of Series A Preferred Stock shall rank
senior to the Common Stock as to the payment of dividends and the distribution
of assets, as provided herein.
SECTION 9. AMENDMENT. The provisions of this Certificate of Designation
shall not hereafter be amended, either directly or indirectly, or through merger
or consolidation with another corporation, in any manner that would alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least a majority of the outstanding shares of Series A Preferred Stock, voting
separately as a class.
SECTION 10. FRACTIONAL SHARES. The Series A Preferred Stock may be
issued in fractions of a share, which fractions shall entitle the holder, in
proportion to such holder's fractional shares, to receive dividends, participate
in distributions, and to have the benefit of all other rights of holders of
Series A Preferred Stock.
SECTION 11. CERTAIN DEFINITIONS. As used herein with respect to
the Series A Preferred Stock, the following terms shall have the following
meanings:
(A) The term "junior stock" (i) as used in Section 4, shall mean the
Common Stock and any other class or series of capital stock of the Company
hereafter authorized or issued over which the Series A Preferred Stock has
preference or priority as to the payment of dividends, and (ii) as used in
Section 6, shall mean the Common Stock and any other class or series of capital
stock of the Company over which the Series A Preferred Stock has preference or
priority in the distribution of assets on any liquidation, dissolution or
winding up of the Company.
3
<PAGE>
(B) The term "parity stock" (i) as used in Section 4, shall mean any
class or series of stock of the Company hereafter authorized or issued ranking
PARI PASSU with the Series A Preferred Stock as to dividends, and (ii) as used
in Section 6, shall mean any class or series of stock of the Company ranking
PARI PASSU with the Series A Preferred Stock in the distribution of assets on
any liquidation, dissolution or winding up.
IN WITNESS WHEREOF, Summit Life Corporation has caused this Certificate
to be signed and attested on this 23rd day of April, 1999.
SUMMIT LIFE CORPORATION
By: /s/ Charles L. Smith
----------------------------
Charles L. Smith, President
ATTEST:
By: /s/Quinton Hiebert
--------------------------
Quinton Hiebert, Secretary
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<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
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<DEBT-HELD-FOR-SALE> 3,976,271 3,932,536
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<EQUITIES> 73,791 84,586
<MORTGAGE> 257,556 321,498
<REAL-ESTATE> 73,405 75,968
<TOTAL-INVEST> 4,459,572 5,329,448
<CASH> 2,796,187 1,754,307
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<INVESTMENT-INCOME> 296,597 277,928
<INVESTMENT-GAINS> 2,763 1,712
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<UNDERWRITING-AMORTIZATION> 51,891 147,529
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<INCOME-PRETAX> (274,557) (364,884)
<INCOME-TAX> 757 531
<INCOME-CONTINUING> (273,800) (364,353)
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