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, 2000
[ ] 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, 2000 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, 2000
(unaudited) and December 31, 1999............................. 3
Consolidated Statements of Operation - Three months and
nine months ended September 30, 2000 and 1999 (unaudited)..... 5
Consolidated Statement of Stockholders' Equity - Nine
months ended September 30, 2000 (unaudited)................... 6
Condensed Consolidated Statement of Cash Flows - Nine
months ended September 30, 2000 and 1999 (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 2. Changes in Securities......................................... 13
Item 6. Exhibits and Reports on Form 8-K.............................. 13
Signatures............................................................ 14
2
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
INVESTMENTS
Debt securities-held to maturity $ 327,412 $ --
Debt securities-available for sale 2,309,765 3,202,369
Equity securities-available for sale 47,919 22,000
Equity securities-other 62,500 62,500
Mortgages 700,487 236,853
Notes receivable 358,808 76,011
Short-term investments -- 1,470,000
Policy loans 32,139 37,947
Investment in limited partnerships 57,300 --
Investment real estate, net of depreciation -- 72,580
----------- -----------
3,896,330 5,180,260
CASH AND CASH EQUIVALENTS 1,397,267 935,746
RECEIVABLES
Accrued investment income 87,231 85,753
Other 163,500 14,808
----------- -----------
250,731 100,561
PROPERTY AND EQUIPMENT-AT COST
Building and improvements 129,419 129,419
Furniture and equipment 116,570 114,470
Automobiles 22,015 54,015
----------- -----------
268,004 297,904
Less accumulated depreciation (96,672) (88,573)
----------- -----------
171,332 209,331
Land 56,000 56,000
----------- -----------
227,332 265,331
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 40,833 45,000
Deferred policy acquisition costs 49,758 42,226
Value of purchased insurance business 355,758 370,758
Deferred income taxes 37,241 37,241
Other 55,920 38,698
----------- -----------
539,510 533,923
----------- -----------
$ 6,311,170 $ 7,015,821
=========== ===========
</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, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES
Policy reserves and policyholder funds $ 4,913,449 $ 5,335,971
Unpaid claims -- 107,000
Accounts payable 15,843 74,742
Accrued liabilities 19,627 28,713
Notes payable 230,317 442,219
Advances from affiliates -- 11,138
----------- -----------
5,179,236 5,999,783
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 22,676 22,676
Series A preferred stock, $.001 par value, stated at
liquidation value 500,000 500,000
Series B convertible preferred stock, $.001 par value 250,000 --
Series B convertible preferred stock subscribed 750,000 --
Less Series B convertible preferred stock (750,000) --
subscriptions
receivable
Additional paid-in capital 2,923,596 2,923,596
Common stock of parent held by subsidiary (95,000) (95,000)
Accumulated other comprehensive income (loss)
Unrealized appreciation (depreciation) of debt (31,808) (83,565)
securities
Accumulated deficit (2,437,530) (2,251,669)
----------- -----------
1,131,934 1,016,038
----------- -----------
$ 6,311,170 $ 7,015,821
=========== ===========
</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,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $ 63,841 $ 59,466 $ 146,146 $ 215,284
Reinsurance premium ceded (11,149) (18,675) (31,576) (35,502)
----------- ----------- ----------- -----------
Net premium income 52,692 40,791 114,570 179,782
Investment activity
Investment income 92,233 134,827 285,821 431,424
Net realized gains (losses) on sale of investments 9,596 2,440 39,127 5,203
Other 6,126 3,943 103,182 27,875
----------- ----------- ----------- -----------
160,647 182,001 542,700 644,284
Benefits, losses and expenses
Policy benefits 21,053 60,482 81,603 113,853
Change in policy reserves 66,344 19,624 161,015 119,353
Interest expense 7,429 15,962 20,677 86,834
Taxes, licenses and fees 16,163 19,761 29,165 43,924
Depreciation and amortization 17,726 65,824 48,093 162,081
General, administrative and other operating expenses 105,875 158,567 363,040 551,015
----------- ----------- ----------- -----------
234,590 340,220 703,593 1,077,060
----------- ----------- ----------- -----------
Earnings (Loss) from continuing operations
before income taxes (73,943) (158,219) (160,893) (432,776)
Income tax provision -- 6,091 -- 6,848
----------- ----------- ----------- -----------
Earnings (Loss) from continuing operations (73,943) (152,128) (160,893) (425,928)
Income from operations of discontinued segment -- -- -- 10,151
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) (73,943) (152,128) (160,893) (415,777)
----------- ----------- ----------- -----------
Preferred Stock Dividend Requirement 12,500 10,473 37,500 16,588
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) APPLICABLE TO COMMON
SHARES $ (86,443) $ (162,601) $ (198,393) $ (432,365)
=========== =========== =========== ===========
Earnings (Loss) per common share -
Basic and diluted
From continuing operations $ (0.04) $ (0.07) $ (0.09) $ (0.20)
From discontinued operations -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (0.04) $ (0.07) $ (0.09) $ (0.20)
=========== =========== =========== ===========
Weighted average outstanding common shares,
basic and diluted 2,248,605 2,248,605 2,248,605 2,171,291
=========== =========== =========== ===========
</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 Ended September 30, 2000
(Unaudited)
Common Stock Preferred Stock "A" Preferred Stock "B"
---------------------------------------------------------------------------------
Shares Par Shares Liquidation Shares Liquidation
Total Issued Value Issued Value Issued Value
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $ 1,016,038 2,267,605 $ 22,676 5,000 $ 500,000 -- --
Dividends on preferred stock (24,968) -- -- -- -- -- --
Issuance of Series B preferred 250,000 -- -- -- -- 250,000 $ 250,000
Comprehensive income
Net loss (160,893) -- -- -- -- -- --
Other comprehensive inc
(loss)
Unrealized loss on investments 51,757 -- -- -- -- -- --
Comprehensive income (loss) (109,136)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 $ 1,131,934 2,267,605 $ 22,676 5,000 $ 500,000 250,000 $ 250,000
=================================================================================================
Common Accum. Series "B"
Stock of Series "B" Other Preferred
Additional Parent Preferred Comprehensive Stock
Paid-in Held by Stock Income Accumulated Subscription
Capital Subsidiary Subscribed (Loss) Deficit Receivable
----------- ----------- ----------- ----------- ----------- -----------
Balance at January 1, 2000 $ 2,923,596 ($ 95,000) -- ($ 83,565) ($2,251,669) --
Dividends on preferred stock -- -- -- -- (24,968) --
Issuance of Series B preferred -- -- $ 750,000 -- -- ($750,000)
Comprehensive income
Net loss -- -- -- -- (160,893) --
Other comprehensive inc
(loss)
Unrealized loss on investments -- -- -- 51,757 -- --
-----------
Comprehensive income (loss)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 $ 2,923,596 ($ 95,000) $ 750,000 ($ 31,808) ($2,437,530) ($ 750,000)
==================================================================================
</TABLE>
The accompanying notes are an integral part of these interim financial
statements.
6
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ (161,704) $ (338,030)
Net cash provided by (used in) investing activities 1,325,670 (141,893)
Net cash provided by (used in) financing activities (702,445) 10,958
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 461,521 (468,965)
Cash and cash equivalents at the beginning of the period 935,746 1,492,196
----------- -----------
Cash and cash equivalents at the end of the period $ 1,397,267 $ 1,023,231
=========== ===========
</TABLE>
The accompanying notes are an integral part of these interim financial
statements
7
<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 nine month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the consolidated
annual financial statements and footnotes thereto for the year ended December
31, 1999.
NOTE B - PRIVATE PLACEMENT OF SERIES B CONVERTIBLE PREFERRED STOCK
In September 2000, the Company sold $1,000,000 of its Series B Convertible
Preferred Stock, par value $.001 per share, pursuant to a private placement
effected pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities
Act of 1933. The Company has collected $250,000 of the proceeds with the balance
of $750,000 to be paid to the Company pursuant to a one-year promissory note.
The promissory note accrues interest at the rate of six percent (6%) per annum
until maturity. Each share of the Series B Convertible Preferred Stock may be
converted, at any time after March 31, 2003, into fully-paid and nonassessable
shares of the Company's common stock on a 1-for-1 basis, subject to the
conditions of the Certificate of Designation of Series B Convertible Preferred
Stock. The Company will use the proceeds from the sale of the Series B
Convertible Preferred Stock for general working capital purposes.
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, 1999
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. In the
past, 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 and
phased out during the second quarter of 2000.
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months ended September
30, 1999
Revenue. Total revenues were $160,647 for the three months ended
September 30, 2000, compared to $182,001 for the three months ended September
30, 1999, a decrease of 12%. Revenues attributable to life insurance increased
29% to $52,692 for the three months ended September 30, 2000, compared to
$40,791 for the same period in 1999. The increase was due primarily to
recognition of annuity surrender charges that occurred during the quarter.
Investment income decreased approximately 32% to $92,233 for the three
months ended September 30, 2000, compared to $134,827 for the three months ended
September 30, 1999, primarily as a result of a shift in the investment portfolio
of the Company, which reduced both investment income and interest expense.
Additionally, the sale in December 1999 of Benefit Capital Life Insurance
Company ("Benefit Capital") contributed to a decrease in invested assets and a
decrease in the investment income from those assets.
Gains on the sale of investments increased 293% from $2,440 to $9,596
for the three months ended September 30, 1999 and 2000, respectively.
Other income increased 55% from $3,943 for the three months ended
September 30, 1999 to $6,126 for the three months ended September 30, 2000, due
to the recognition of revenues from new administrative service contracts.
9
<PAGE>
Costs and Expenses. Total expenses decreased 31% to $234,590 for the
three months ended September 30, 2000, compared to $340,220 for the three months
ended September 30, 1999. Such decrease was primarily attributable to the sale
of Benefit Capital and the elimination of the related expenses from its
Louisiana operations. This included the amortization of value of purchased
insurance business relating to Benefit Capital. Amortization of value of
purchased insurance business is expected to continue with respect to the
Company's 1999 acquisition of Great Midwest Life Insurance Company ("Great
Midwest"), but at comparatively reduced levels, over the premium-paying life of
the acquired policies. Management continued its cost containment program in
other areas as well.
Policy benefits decreased 65% from $60,482 to $21,053 for the
comparable periods. Policy reserves increased $46,720 for the comparable
periods. Interest expense decreased 53% from $15,962 to $7,429 for the
comparable periods due to a repositioning of the Company's assets that
eliminated most of its related interest expense. Depreciation and amortization
decreased 73% to $17,726 for the three months ended September 30, 2000, compared
to $65,824 for the three months ended September 30, 1999, due to the sale of
Benefit Capital and the write-off of goodwill at year-end 1999, which reduced
the amount of such assets subject to ongoing amortization and depreciation.
General expenses decreased 33% from $158,567 to $105,875 for the comparable
periods, as a result of the elimination of the Louisiana operations and due to
management's other cost containment efforts.
Losses. The Company reported a loss from continuing operations for the
three months ended September 30, 2000 of $73,943, compared to a loss from
continuing operations for the comparable period in 1999 of $158,219, a 53%
decrease. The decrease was due primarily to an increase in realized gains on
investment securities, the elimination of expenses related to Benefit Capital,
as well as other expense reductions. For the three months ended September 30,
2000, the Company reported a net loss of $73,943, compared to a net loss of
$152,128 for the three months ended September 30, 1999, a reduction of 51%. The
change was due largely to cost containment programs implemented by the Company,
which included the sale of Benefit Capital.
The Company's loss per share from continuing operations decreased by
43% to $0.04 per share for the three months ended September 30, 2000, compared
to a loss of $0.07 per share for the three months ended September 30, 1999. Net
loss per share for the comparable periods was $0.04 and $0.07 per share,
respectively.
Nine Months Ended September 30, 2000 Compared to Nine Months ended September 30,
1999
Revenue. Total revenues decreased 16% to $542,700 for the nine months
ended September 30, 2000, compared to $644,284 for the nine months ended
September 30, 1999. Revenues attributable to life insurance decreased 36% from
$179,782 to $114,570 for the comparable periods. The decrease was due primarily
to the sale of Benefit Capital, which accounted for premium revenue of $48,897
for the 1999 nine-month period, or approximately 75% of the total decrease.
Certain adjustments made at the time of the acquisition of Great Midwest in 1999
also contributed to the decrease.
Investment income decreased 34% from $431,424 for the nine months ended
September 30, 1999 to $285,821 for the nine months ended September 30, 2000,
primarily as a result of a shift in the investment portfolio of the Company
which reduced both investment income and interest expense. The sale of Benefit
Capital also contributed to a decrease in invested assets and a decrease in the
investment income from those assets. For the 1999 nine-month period, Benefit
Capital contributed investment income of $58,441, or approximately 40% of the
total decrease.
Gains on the sale of investments offset the decreases in life insurance
revenue and investment income, increasing 652% from $5,203 to $39,127 for the
nine months ended September 30, 1999 and September 30, 2000, respectively.
Other income increased 270% from $27,875 for the nine months ended
September 30, 1999 to $103,182 for the nine months ended September 30, 2000,
primarily due to the recognition of deferred gains on real estate sold by the
Company in prior years. The Company also began recognizing revenues from new
administrative service contracts.
10
<PAGE>
Costs and Expenses. Total expenses decreased 35% from $1,077,060 to
$703,593 for the nine months ended September 30, 1999 and September 30, 2000,
respectively. Such decrease was primarily attributable to the sale of Benefit
Capital and the elimination of the related expenses from its Louisiana
operations. This included the amortization of value of purchased insurance
business relating to Benefit Capital. Amortization of value of purchased
insurance business is expected to continue with respect to the Company's 1999
acquisition of Great Midwest, but at reduced levels, over the premium-paying
life of the acquired policies. Management's cost containment programs helped
reduce costs in other areas as well.
Policy benefits decreased 28% from $113,853 to $81,603 for the nine
months ended September 30, 1999 and September 30, 2000, respectively, as the
Company benefited from more favorable experience. Policy reserves increased
$41,662 for the comparable periods. Interest expense decreased 76% from $86,834
to $20,677 for the comparable periods due to a repositioning of the Company's
assets that eliminated most of its interest expense. Depreciation and
amortization decreased 70% from $162,081 to $48,093 for the nine months ended
September 30, 1999 and September 30, 2000, respectively, due to the sale of
Benefit Capital and the write-off of goodwill at year-end 1999, which reduced
the amount of such assets subject to ongoing amortization and depreciation.
General expenses decreased 34% from $551,015 to $363,040 as a result of the
elimination of the Louisiana operation and management cost containment programs.
Losses. The Company reported a loss from continuing operations for the
nine months ended September 30, 2000 of $160,893, compared to a loss from
continuing operations for the nine months ended September 30, 1999 of $432,776,
a 63% decrease. The decrease was due to an increase in realized gains on
investment securities, recognition of deferred gains on the sale of property and
the elimination of expenses related to Benefit Capital as well as other expense
reductions. The Company's net loss was $160,893 for the nine months ended
September 30, 2000, compared to a net loss of $415,777 for the nine months ended
September 30, 1999, a decrease of 61%.
The Company's loss per share from continuing operations decreased to
$0.09 per share for the nine months ended September 30, 2000, compared to a loss
of $0.20 per share for the nine months ended September 30, 1999. Net loss per
share for the comparable periods was $0.09 and $0.20 per share, respectively.
Liquidity and Capital Resources
Total assets were $6,311,170 at September 30, 2000, compared to
$7,015,821 at December 31, 1999, a decrease of 10%. The decrease was due to the
reduction of certain Company debt and temporary declines in the value of the
Company's investment portfolio.
Total liabilities (primarily insurance reserves for future policyholder
benefits) were $5,179,236 at September 30, 2000, compared to $5,999,783 at
December 31, 1999, a decrease of 14%. The decrease was due primarily to
repayment of a portion of the Company's outstanding debt and reduction of
outstanding insurance claims.
Total stockholders' equity was $1,131,934 at September 30, 2000,
compared to $1,016,038 at December 31, 1999, an increase of 11%. The increase
was due primarily to the Company's sale of $1,000,000 of its Series B
Convertible Preferred Stock in September 2000. Of the $1,000,000 subscribed, the
Company has collected $250,000, with the remaining $750,000 to be paid to the
Company pursuant to a one-year promissory note. The promissory note accrues
interest at the rate of six percent (6%) per annum until maturity. Proceeds from
the stock sale were used for general working capital purposes.
11
<PAGE>
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, policy loans and claims under outstanding
insurance policies and annuities. 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 of a policy or block of
policies 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 those
policies that are lapsed or surrendered.
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 2001, with amounts borrowed
thereunder bearing interest at prime plus .5%. At September 30, 2000, $110,000
was outstanding under the line of credit and, as of the date of this Report, the
Company has $40,000 available under the credit facility.
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 accrued 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. The balance
of the loan was paid December 31, 1999 using operating cash flow and the
proceeds from the sale of Benefit Capital. In addition, the Company has paid two
of the three installments on the promissory note held by a former stockholder of
Great Midwest.
The Company has made and intends to make substantial expenditures in
connection with its subsidiary's acquisition and 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, 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.
12
<PAGE>
Part II - Other Information
Item 2. Changes in Securities
On September 30, 2000, the Company issued 1,000,000 shares of a newly
created class of Series B Convertible Preferred Stock to an accredited investor
for an aggregate consideration of $1,000,000. The Company has collected $250,000
of the aggregate consideration, with the remaining $750,000 of the purchase
price to be paid to the Company pursuant to a one-year promissory note. The
promissory note accrues interest at the rate of six percent (6%) per annum until
maturity. No sales commissions were paid in connection with the sale of the
Series B Convertible Preferred stock and the securities were issued in reliance
on the exemption from registration provided by Section 4(2) and Rule 506 of
Regulation D of the Securities Act of 1933. Each share of the Series B
Convertible Preferred Stock may be converted, at any time after March 31, 2003,
into fully paid and nonassessable whole shares of the Company's common stock on
a 1-for-1 basis, subject to the conditions of the Certificate of Designation of
Series B Convertible Preferred Stock.
As long as any shares of the Series B Convertible Preferred Stock are
outstanding, the Series B Convertible Preferred Stock will rank senior to the
Company's Common Stock as to the payment of dividends and senior to the Common
Stock as to the payment of distributions upon the Company's liquidation,
winding-up and dissolution, and will rank junior to the Series A Preferred Stock
with respect to the payment of dividends, and will rank pari passu to the Series
A Preferred Stock with respect to the payment of distributions upon the
Company's liquidation, winding-up and dissolution, subject, however, to the
liquidation values stated in this Certificate of Designation and the Series A
Certificate of Designation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Name of Exhibit
------- ---------------
*4.1 Certificate of Designation of Series B Convertible 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: November 14, 2000 /s/Charles L. Smith
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Charles L. Smith
President and Chief Operating Officer
Date: November 14, 2000 /s/Quinton L. Hiebert
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Quinton L. Hiebert
Vice-President and Chief Financial Officer
14
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INDEX TO EXHIBITS
Exhibit
Number Name of Exhibit Page
------- --------------- ----
4.1 Certificate of Designation of Series B Convertible
Preferred Stock 16
27.1 Financial Data Schedule 21
15
