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 September 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 November 14, 1999 was 2,248,605.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1999 (unaudited)
and December 31, 1998......................................... 3
Consolidated Statements of Operation - Three months and nine
months ended September 30, 1999 and 1998 (unaudited)........... 5
Consolidated Statement of Stockholders' Equity - Nine months
ended September 30, 1999 (unaudited)........................... 6
Condensed Consolidated Statement of Cash Flows - Nine months
ended September 30, 1999 and 1998 (unaudited).................. 7
Notes to Consolidated Financial Statements..................... 8
Item 2. Management's Discussion and Analysis or Plan of Operation...... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 14
Signatures............................................................. 14
2
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
September 30, 1999 December 31, 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
INVESTMENTS
Debt securities-available for sale $ 3,937,334 $ 4,105,139
Equity securities-available for sale 5,976 46,557
Mortgages 242,304 282,789
Notes receivable 77,802 958,679
Short-term investments 1,520,000 156,541
Policy loans 61,235 18,142
Investment real estate, net of depreciation 72,953 73,251
------------------ ------------------
5,917,604 5,641,098
CASH AND CASH EQUIVALENTS 1,023,231 1,492,196
RECEIVABLES
Accrued investment income 107,675 240,417
Other 14,486 13,156
------------------ ------------------
122,161 253,573
PROPERTY AND EQUIPMENT-AT COST
Building and improvements 117,379 115,853
Furniture and equipment 132,674 132,811
Automobiles 54,015 45,275
------------------ ------------------
304,068 293,939
Less accumulated depreciation (78,112) (63,382)
------------------ ------------------
225,956 230,557
Land 56,000 56,000
------------------ ------------------
281,956 286,557
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 128,781 106,918
Deferred policy acquisition costs 20,926 20,926
Value of purchased insurance business 577,345 272,465
Land and building held for sale 171,529 176,153
Deferred income taxes -- 31,943
Other 34,881 124,261
------------------ ------------------
933,462 732,666
------------------ ------------------
$ 8,278,414 $ 8,406,090
================== ==================
</TABLE>
The accompanying notes are an integral part of these interim financial
statements
3
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Policy reserves and policyholder funds $ 6,165,493 $ 6,027,599
Accounts payable 4,952 51,061
Accrued liabilities 39,822 209,353
Notes payable 603,023 1,325,247
Deferred income taxes 1,989 --
Other liabilities -- 16,000
------------------ -----------------
6,815,279 7,629,260
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 22,676 20,547
Preferred stock, $.001 par value 5 --
Additional paid-in capital 3,413,739 2,079,661
Common stock of parent held by subsidiary (95,000) --
Common stock subscribed -- 39,130
Accumulated other comprehensive income (96,557) 25,985
Accumulated deficit (1,781,728) (1,349,363)
Less stock subscriptions receivable -- (39,130)
------------------ -----------------
1,463,135 776,830
================== =================
$ 8,278,414 $ 8,406,090
================== =================
</TABLE>
The accompanying notes are an integral part of these interim financial
statements
4
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Consolidated Statements of Operation
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $ 40,791 $ 14,063 $ 179,782 $ 71,196
Investment income 134,827 151,909 431,424 429,837
Net realized gains (losses) on sale of investments 2,440 -- 5,203 1,712
Other 3,943 1,874 27,875 7,476
---------- ---------- ---------- ----------
182,001 167,846 644,284 510,221
Benefits, losses and expenses
Policy benefits 60,482 2,894 113,853 67,939
Change in policy reserves 19,624 66,559 119,353 161,967
Interest expense 15,962 31,565 86,834 81,521
Taxes, licenses and fees 19,761 10,280 43,924 25,222
Depreciation and amortization 65,824 48,534 162,081 238,940
General, administrative and other operating expenses 158,567 148,315 551,015 472,880
---------- ---------- ---------- ----------
340,220 308,147 1,077,060 1,048,469
---------- ---------- ---------- ----------
Earnings (Loss) from continuing operations
before income taxes (158,219) (140,301) (432,776) (538,248)
Income tax provision 6,091 2,228 6,848 2,759
---------- ---------- ---------- ----------
Earnings (Loss) from continuing operations $ (152,128) $ (138,073) $ (425,928) $ (535,489)
Income from operations of discontinued segment -- 35,489 10,151 92,112
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) $ (152,128) $ (102,584) $ (415,777) $ (443,377)
Preferred Stock Dividend Requirement 10,473 -- 16,588 --
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHARES $ (162,601) $ (102,584) $ (432,365) $ (443,377)
========== ========== ========== ==========
Earnings (Loss) per common share -
Basic and diluted
From continuing operations $ (0.07) (0.07) $ (0.20) $ (0.26)
From discontinued operations -- 0.02 -- 0.04
---------- ---------- ---------- ----------
NET LOSS $ (0.07) $ (0.05) $ (0.20) $ (0.22)
========== ========== ========== ==========
Weighted average outstanding common shares,
basic and diluted 2,248,605 2,054,740 2,171,291 2,044,440
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these interim financial
statements
5
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
Nine Months Ending September 30, 1999
(Unaudited)
Common Stock Preferred Stock
--------------------- -----------------
Shares Additional Common
Shares Par Out- Par paid-in stock
Total Issued Value standing Value capital subscribed
----------- --------- ----------- -------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ 776,830 2,054,735 $ 20,547 -- $ -- $ 2,079,661 $ 39,130
Sale of common stock net
of offering expenses of $110,488 712,882 163,770 1,638 -- -- 711,244 --
Sale of preferred stock 489,200 -- -- 4,892 5 489,195 --
Collection of stock subscriptions
receivable 39,130 30,100 301 -- -- 38,829 (39,130)
Issuance of common stock of
parent to subsidiary -- 19,000 190 -- -- 94,810 --
Dividends on preferred stock (16,588) -- -- -- -- --
--
Comprehensive income
Net loss (415,777) -- -- -- -- -- --
Other comprehensive income
Unrealized loss on investments (122,542) -- -- -- -- -- --
-----------
Comprehensive income (538,319) -- -- -- -- -- --
----------- ----------- ----------- ----- ------ ----------- ----------
Balance at September 30, 1999 $ 1,463,135 2,267,605 $ 22,676 4,892 $ 5 $ 3,413,739 $ --
=========== =========== =========== ===== ====== =========== ===========
Accum. Other Stock of
Comprehensive Stock Parent Held
income Accumulated subscriptions by
(loss) deficit receivable Subsidiary
------------- ------------ ------------ ------------
Balance at January 1, 1999 $ 25,985 $(1,349,363) $ (39,130) $ --
Sale of common stock net
of offering expenses of $110,488 -- -- -- --
Sale of preferred stock -- -- -- --
Collection of stock subscriptions
receivable -- -- 39,130 --
Issuance of common stock of
parent to subsidiary -- -- -- (95,000)
Dividends on preferred stock
-- -- (16,588) --
Comprehensive income
Net loss -- (415,777) -- --
Other comprehensive income
Unrealized loss on investments (122,542) -- -- --
Comprehensive income -- -- -- --
----------- ----------- ------------- -----------
Balance at September 30, 1999 $ (96,557) $(1,781,728) $ -- $ (95,000)
=========== =========== ============= ===========
The accompanying notes are an integral part of these interim financial statements
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ (338,030) $ (91,544)
Net cash provided by (used in) investing activities (141,893) (197,703)
Net cash provided by (used in) financing activities 10,958 345,188
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (468,965) 55,941
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 $ 1,023,231 $ 1,349,398
=========== ===========
The accompanying notes are an integral part of these interim financial statements
</TABLE>
<PAGE>
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 nine month period ended
September 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 (Great Midwest) in a business
combination accounted for as a purchase. Great Midwest is primarily engaged in
the sale of life insurance products and is licensed in Texas and Oklahoma. The
results of operations of Great Midwest are included in the results for the first
nine months 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
Great Midwest by the Company, the Company increased 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 Great
Midwest. 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.
NOTE E - SUBSEQUENT EVENTS
Great Midwest was approved to do business in Oklahoma on October 5, 1999.
Filings were made with, and approved by, the Oklahoma and Texas Departments of
Insurance to transfer the block of business of Summit Life and Annuity Company
to Great Midwest with an effective date of October 1, 1999.
8
<PAGE>
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
The Company's primary focus is its life insurance operations, but it
has also provided financing to medical accounts receivable factoring entities.
This type of financing was integrated into the investment portfolios of the
subsidiary life insurance companies during the second quarter of 1999. 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 nine months ended September 30, 1999
and 1998 are shown separately in the consolidated statements of operations
included elsewhere in this Report.
Nine Months Ended September 30, 1999 Compared to Nine Months ended
September 30, 1998
Assets/Liabilities/Stockholders' Equity. Total assets were $8,278,414
at September 30, 1999, compared to $8,406,090 at December 31, 1998, a decrease
of 2%. The decrease was due to the reduction of certain Company debt and certain
accounting adjustments made to the value of the Company's investment portfolio.
See "-Liquidity and Capital Resources."
9
<PAGE>
Total liabilities (primarily insurance reserves for future policyholder
benefits) were $6,815,279 at September 30, 1999, compared to $7,629,260 at
December 31, 1998, a decrease of 11%. The decrease was due primarily to
repayment of a portion of the Company's outstanding debt.
Total stockholders' equity was $1,463,135 at September 30, 1999,
compared to $776,830 at December 31, 1998, an increase of 88%. The increase was
primarily due to sales of the Company's common stock pursuant to the Company's
initial public offering (the "IPO") as well as a private placement of preferred
stock which occurred in April 1999.
Revenue. Revenues attributable to life insurance increased 141% on a
gross premium basis from $88,744 to $213,967 and 152% on a net premium basis
(after reinsurance costs) from $71,196 to $179,782 for the nine months ended
September 30, 1999, compared to the same period ended September 30, 1998. The
increase was due primarily to the acquisition of Great Midwest, and reflects a
shift in the "mix" of insurance products sold. Prior to 1998, the Company
primarily sold annuities, which are recorded as deposit liabilities, rather than
as revenues. Revenues relating to annuity contracts consist primarily of
withdrawal and administrative charges. Conversely, premiums relating to life
insurance policies are recognized as revenues when received.
Investment income increased less than 1%, from $429,837 for the nine
months ended September 30, 1998 to $431,424 for the nine months ended September
30, 1999, primarily as a result of a small decrease in assets invested.
Costs and Expenses. Total expenses increased 3% from $1,048,469 to
$1,077,060 for the nine months ended September 30, 1998 and 1999, respectively.
Such increase was primarily attributable to the expenses associated with the
Company's status as a public reporting company and the inclusion of Great
Midwest's operations, 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.
Policy benefits increased 68% from $67,939 to $113,853 for the
comparable periods, due almost completely to the inclusion of Great Midwest in
the Company's 1999 year-to-date operations. Taking into account Great Midwest's
reported policy benefits of $117,619 for the first nine months of 1998 (prior to
its acquisition by the Company), policy benefits for the nine months ended
September 30, 1999 actually represent a decrease over the prior period of 39%.
In addition, the nine months ended September 30, 1999 reflects a $20,600 expense
not incurred during the comparable period in 1998, related to examination costs
associated with regulatory examinations of the Company's life insurance
subsidiaries. Because such examinations are made on a periodic basis ranging
from three to five years, the prior period does not reflect any of such costs.
Losses. The Company reported a loss from continuing operations for the
nine months ended September 30, 1999 of $425,928, compared to a loss from
continuing operations for the nine months ended September 30, 1998 of $535,489,
a 21% decrease. This was due to the increase in revenues while expenses were
held to a negligible increase. Net loss decreased 6%, with a net loss of
$415,777 for the nine months ended September 30, 1999, compared to a net loss of
$443,377 for the nine months ended September 30, 1998.
The Company's loss per share from continuing operations decreased to
$0.20 per share for the nine months ended September 30, 1999, compared to a loss
of $0.26 per share for the nine months ended September 30, 1998. Net loss per
share for the comparable periods was $0.20 and $0.22 per share, respectively.
10
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months ended
September 30, 1998
Revenue. Revenues attributable to life insurance increased 150% from
$23,192 to $58,128 on a gross premium basis for the three months ended September
30, 1999, compared to the same period ended September 30, 1998. Revenues
increased 190% from $14,063 to $40,791 on a net premium basis (after reinsurance
costs) for the three months ended September 30, 1999, compared to the same
period ended September 30, 1998. The increase was due primarily to the
acquisition of Great Midwest, and reflects a shift in the "mix" of insurance
products sold. Prior to 1998, the Company primarily sold annuities, the premiums
for which are recorded as deposits, 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.
Investment income decreased 11%, from $151,909 for the three months
ended September 30, 1998 to $134,827 for the three months ended September 30,
1999, primarily as a result of a shift in the investment mix in the portfolios
of the subsidiary insurance companies.
Costs and Expenses. Total expenses increased 10% from $308,147 to
$340,220 for the three months ended September 30, 1998 and 1999, respectively.
Such increase was primarily attributable to the examination expenses of $12,800
incurred for the subsidiary insurance companies. These expenses are incurred
every three to five years and management's plan to combine company operations of
its subsidiary companies has been pursued in part to reduce these types of
expenses. Such increase is also attributable to the addition of Great Midwest
Life Insurance Company and its associated costs in 1999. These included policy
benefits of $15,800, amortization of certain purchase costs of $12,500 and
examination costs of $2,500 for the three months ended September 30, 1999.
Losses. The Company reported an increase in the loss from continuing
operations of 10%, with a loss of $152,128 for the three months ended September
30, 1999, compared to a loss of $138,073 for the same period in 1998. The
Company's net loss increased 48%, with a reported net loss of $152,128 for the
three months ended September 30, 1999, compared to a net loss of $102,584 for
the three months ended September 30, 1998. The increase in net loss was due
primarily to the amortization of certain costs associated with the purchase of
Benefit Capital Life Insurance Company and Great Midwest Life Insurance Company
and the aforementioned examination costs.
The Company's loss per share from continuing operations remained
unchanged at $0.07 per share for the three months ended September 30, 1999,
compared to a loss of $0.07 per share for the three months ended September 30,
1998. Net loss per share for the comparable periods was $0.07 and $0.05 per
share, respectively.
Liquidity and Capital Resources
On January 11, 1999, a registration statement relating to the Company's
IPO was declared effective by the Securities and Exchange Commission. 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
close the offering on June 30, 1999. Net proceeds of $708,362 have been utilized
to the stated uses described in the IPO 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
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
11
<PAGE>
per share. The effect of preferred stock dividends on the loss to common
shareholders was $10,473 for the three months and $16,588 for the nine months
ended September 30, 1999. The net proceeds from the sale of the Series A
Preferred Stock were utilized to repay outstanding debt of the Company, to
increase the statutory capital and surplus of subsidiary insurance companies,
and to increase working capital.
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 September 30, 1999, $75,000
was outstanding under the line of credit and, as of the date of this Report, the
Company has $25,000 available under the credit facility.
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.
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 nine surrenders for the
nine months ended September 30, 1999, compared to 42 policy surrenders for the
nine months ended September 30, 1998.
On January 13, 1999, the Company acquired 100% of the outstanding
common stock of Great Midwest, a Texas-chartered life insurance company. 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.
In accordance with the Company's plan to consolidate certain of its
operations and thereby eliminate duplicative capital and surplus requirements,
the Company determined to consolidate the operations of Great Midwest and Summit
Life and Annuity Company, an Oklahoma-based life insurer. After Great Midwest
12
<PAGE>
was approved to do business in Oklahoma, on October 5, 1999, filings were made
with, and approved by, the Oklahoma and Texas Departments of Insurance to
transfer the block of business of Summit Life and Annuity Company to Great
Midwest with an effective date of October 1, 1999. After such transaction has
been fully effectuated, and after receiving any necessary regulatory approvals,
Summit Life and Annuity Company will be merged with and into the Company. As a
result of these series of transactions, over $300,000 of the statutory capital
and surplus formerly required to be maintained by Summit Life and Annuity
Company will be available to the Company as additional working capital.
Formerly, 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.
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.
The Company believes that the liquidity resulting from the transactions
described above, together with anticipated cash from continuing operations,
should be sufficient to fund its operations and to make required payments under
its credit facility and bank term loan, the required payments of principal and
interest under the 6% promissory notes payable to a former stockholder of Great
Midwest and the annual 10% dividend on the Series A Preferred Stock, for at
least the next 12 months. The Company may not, however, generate sufficient cash
flow for these purposes or to repay the notes at maturity. The Company's ability
to fund its operations and to make scheduled principal and interest payments
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. The Company may also need to refinance all
or a portion of the notes on or prior to maturity. There can be no assurance
that the Company will be able to effect any such refinancing on commercially
reasonable terms, if at all.
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.
13
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Name of Exhibit
------- ---------------
*27.1 Financial Data Schedule
* Filed electronically herewith
(b) Reports on Form 8-K: none.
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: November 9, 1999 /s/ Charles L. Smith
------------------------------------------
Charles L. Smith
President and Chief Operating Officer
Date: November 9, 1999 /s/ Quinton L. Hiebert
------------------------------------------
Quinton L. Hiebert
Vice-President and Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit Number
--------------
Name of Exhibit
---------------
*27.1 Financial Data Schedule
* Filed electronically herewith
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
</LEGEND>
<CIK> 0000924963
<NAME> Summit Life Corporation
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<EXCHANGE-RATE> 1 1
<DEBT-HELD-FOR-SALE> 3,937,334 3,987,164
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 5,976 118,437
<MORTGAGE> 242,304 282,789
<REAL-ESTATE> 72,953 75,968
<TOTAL-INVEST> 5,917,604 5,802,307
<CASH> 1,023,231 1,492,196
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 598,271 318,223
<TOTAL-ASSETS> 8,278,414 8,440,207
<POLICY-LOSSES> 0 0
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 6,165,493 5,988,191
<NOTES-PAYABLE> 603,023 1,264,229
0 0
5 0
<COMMON> 22,676 20,547
<OTHER-SE> 1,440,454 918,535
<TOTAL-LIABILITY-AND-EQUITY> 8,278,414 8,440,207
179,782 71,196
<INVESTMENT-INCOME> 431,424 429,837
<INVESTMENT-GAINS> 5,203 1,712
<OTHER-INCOME> 27,875 7,476
<BENEFITS> 113,853 67,939
<UNDERWRITING-AMORTIZATION> 95,775 174,370
<UNDERWRITING-OTHER> 981,285 874,099
<INCOME-PRETAX> (432,776) (538,248)
<INCOME-TAX> 6,848 2,759
<INCOME-CONTINUING> (425,928) (535,489)
<DISCONTINUED> 10,151 92,112
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (415,777) (443,377)
<EPS-BASIC> (.20) (.22)
<EPS-DILUTED> (.20) (.22)
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
