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 March 31, 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 May 11, 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 - March 31, 2000 (unaudited) and
December 31, 1999................................................ 3
Consolidated Statements of Operation - Three months
ended March 31, 2000 and 1999 (unaudited)........................ 5
Consolidated Statement of Stockholders' Equity - Three months
ended March 31, 2000 (unaudited)................................. 6
Condensed Consolidated Statement of Cash Flows - Three months
ended March 31, 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 6. Exhibits and Reports on Form 8-K................................. 12
Signatures............................................................... 12
2
<PAGE>
<TABLE>
<CAPTION>
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
March 31, 2000 December 31, 1999
------------------------- ------------------------
<S> <C> <C>
(Unaudited)
INVESTMENTS
Debt securities-available for sale $2,846,698 $3,202,369
Equity securities-available for sale 62,292 22,000
Equity securities-other 62,500 62,500
Mortgages 329,562 236,853
Notes receivable 70,866 76,011
Short-term investments 1,320,000 1,470,000
Policy loans 34,979 37,947
Investment real estate, net of depreciation 71,884 72,580
------------------------- ------------------------
4,798,781 5,180,260
CASH AND CASH EQUIVALENTS 946,586 935,746
RECEIVABLES
Accrued investment income 80,049 85,753
Other 16,486 14,808
------------------------- ------------------------
96,535 100,561
PROPERTY AND EQUIPMENT-AT COST
Building and improvements 129,419 129,419
Furniture and equipment 114,470 114,470
Automobiles 54,015 54,015
------------------------- ------------------------
297,904 297,904
Less accumulated depreciation ( 98,945) (88,573)
------------------------- ------------------------
198,959 209,331
Land 56,000 56,000
------------------------- ------------------------
254,959 265,331
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 43,333 45,000
Deferred policy acquisition costs 40,893 42,226
Value of purchased insurance business 365,758 370,758
Deferred income taxes 37,241 37,241
Other 37,534 38,698
------------------------- -------------------------
524,759 533,923
------------------------- -------------------------
$6,621,620 $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
March 31, 2000 December 31, 1999
------------------------ ------------------------
<S> <C> <C>
(Unaudited)
LIABILITIES
Policy reserves and policyholder funds $5,334,021 $5,335,971
Unpaid claims -- 107,000
Accounts payable 15,992 74,742
Accrued liabilities 33,272 28,713
Notes payable 380,601 442,219
Deferred income taxes -- --
Other liabilities -- 11,138
------------------------ ------------------------
5,763,886 5,999,783
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 22,676 22,676
Preferred stock, $.001 par value, stated at
liquidation value 500,000 500,000
Additional paid-in capital 2,923,596 2,923,596
Common stock of parent held by subsidiary (95,000) (95,000)
Accum. other comprehensive income (loss) (143,544) (83,565)
Accumulated deficit (2,349,994) (2,251,669)
------------------------ ------------------------
857,734 1,016,038
------------------------ ------------------------
$6,621,620 $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
March 31,
---------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Revenues
Insurance premiums $ 29,271 $ 83,172
Investment income 103,505 151,899
Net realized gains (losses) on sale of investments 24,723 2,763
Other 5,305 18,140
---------------- ----------------
162,804 255,974
Benefits, losses and expenses
Policy benefits 33,667 18,172
Change in policy reserves 55,881 (6,630)
Interest expense 8,570 28,638
Taxes, licenses and fees 8,319 14,158
Depreciation and amortization 18,066 56,070
General, administrative and other operating expenses 136,626 235,821
---------------- ----------------
261,129 346,229
---------------- ----------------
Earnings (Loss) from continuing operations
before income taxes ( 98,325) ( 90,255)
Income tax provision -- 1,157
---------------- ----------------
Earnings (Loss) from continuing $ ( 98,325) $ ( 89,098)
operations
Income from operations of discontinued segment -- 10,781
---------------- ----------------
NET EARNINGS (LOSS) $ ( 98,325) $ ( 78,317)
Preferred Stock Dividend Requirement 12,500 --
----------------- ----------------
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHARES $ (110,825) $ ( 78,317)
================= ================
Earnings (Loss) per common share -
Basic and diluted
From continuing operations $ (0.05) $ (0.04)
From discontinued operations -- --
---------------- ----------------
NET LOSS $ (0.05) $ (0.04)
================ ================
Weighted average outstanding common shares,
basic and diluted 2,248,605 2,086,412
================ ================
</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
Three Months Ending March 31, 2000
(Unaudited)
Common Stock Preferred Stock
------------ ---------------
Shares Liquid- Additional
Shares Par Out- ation paid-in
Total Issued Value standing Value capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $ 1,016,038 2,267,605 $ 22,676 5,000 $ 500,000 $ 2,923,596
Comprehensive income (loss)
Net loss (98,325) -- -- -- -- --
Other comprehensive income
Unrealized loss on investments (59,979) -- -- -- -- --
-----------
Comprehensive income (loss) (158,304)
----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2000 $ 857,734 2,267,605 $ 22,676 5,000 $ 500,000 $ 2,923,596
=========== =========== =========== =========== =========== ===========
Common
Accum. Other Stock of
Comprehensive Parent Held
income Accumulated by
(loss) deficit Subsidiary
----------- ----------- -----------
Balance at January 1, 2000 (83,565) $(2,251,669) $ (95,000)
Comprehensive income (loss)
Net loss -- (98,325) --
Other comprehensive income
Unrealized loss on investments (59,979) -- --
Comprehensive income (loss)
----------- ----------- -----------
Balance at March 31, 2000 $ (143,544) $(2,349,994) $ (95,000)
----------- =========== ===========
</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)
Three Months Ended
March 31,
---------------------------------------------
2000 1999
---------------- ------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ (206,069) $ (65,193)
Net cash provided by (used in) investing activities 321,968 (2,207)
Net cash provided by (used in) financing activities (105,059) 477,456
---------------- ------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 10,840 410,056
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 $ 946,586 $ 1,902,252
================ ========================
</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 three month period ended March 31, 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.
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, 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.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months ended March
31, 1999
Assets/Liabilities/Stockholders' Equity. Total assets were $6,621,620
at March 31, 2000, compared to $7,015,821 at December 31, 1999, a decrease of
5.6%. The decrease was due to the reduction of certain Company debt, adjustments
made to the value of the Company's investment portfolio and the reduction of
outstanding insurance claims. See "-Liquidity and Capital Resources."
Total liabilities (primarily insurance reserves for future policyholder
benefits) were $5,763,886 at March 31, 2000, compared to $5,999,783 at December
31, 1999, a decrease of 4%. 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 $857,734 at March 31, 2000, compared to
$1,016,038 at December 31, 1999, a decrease of 15.6%. The decrease was primarily
due to the net operating loss for the first quarter as well as certain
adjustments made to the value of the Company's investment portfolio.
Revenue. Revenues attributable to life insurance decreased 65% from
$83,172 to $29,271 for the three months ended March 31, 2000, compared to the
same period ended March 31, 1999. The decrease was due primarily to the sale of
Benefit Capital Life Insurance Company ("Benefit Capital") which accounted for
21% of the decrease. Certain adjustments made at the time of the acquisition of
Great Midwest Life Insurance Company ("Great Midwest") in 1999 also contributed
to the decrease.
9
<PAGE>
Investment income decreased 32% from $151,899 for the three months
ended March 31, 1999 to $103,505 for the three months ended March 31, 2000,
primarily as a result of a shift in the investment portfolio of the Company
which reduced both investment income and interest expense.
Costs and Expenses. Total expenses decreased 24.6% from $346,229 to
$261,129 for the three months ended March 31, 1999 and 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. Such amortization is expected to continue for Great Midwest, but at
reduced levels, over the premium-paying life of the acquired policies.
Policy benefits increased 85% from $18,172 to $33,667 for the
comparable periods, due to surrenders on annuity policies. Policies reserves
increased $62,511 for the comparable periods due in part to certain adjustments
made for the acquisition of Great Midwest. Interest expense decreased 70% from
$28,638 to $8,570 for the comparable periods due to a repositioning of the
Company's assets which eliminated most of its interest expense. Depreciation and
amortization decreased 68% for the three months ended March 31, 2000 and 1999,
respectively, due to the sale of Benefit Capital and the writeoff of goodwill at
yearend which reduced the amount of such assets subject to ongoing amortization
and depreciation. Despite direct costs of $11,200 associated with the Company's
terminated attempted acquisition of Texas Savings Life Insurance Company,
general expenses decreased 42% from $235,821 to $136,626, primarily as a result
of the elimination of the Louisiana operation and its associated costs.
Losses. The Company reported a loss from continuing operations for the
three months ended March 31, 2000 of $98,325, compared to a loss from continuing
operations for the three months ended March 31, 1999 of $90,255, a 9% increase.
This was due to the reduction in revenues resulting from the sale of Benefit
Capital and the shift in the Company's investment portfolio discussed above.
Although the sale of Benefit Capital also resulted in expense reductions, other
expenses increased slightly. Net loss increased 25%, with a net loss of $98,325
for the three months ended March 31, 2000, compared to a net loss of $78,317 for
the three months ended March 31, 1999. The change was due to income reported in
the prior period from a one time sale of certain intangible assets associated
with a discontinued segment.
The Company's loss per share from continuing operations increased
slightly to $0.05 per share for the three months ended March 31, 2000, compared
to a loss of $0.04 per share for the three months ended March 31, 1999. Net loss
per share for the comparable periods was $0.05 and $0.04 per share,
respectively.
10
<PAGE>
Liquidity and Capital Resources
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 which 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 2000, with amounts borrowed
thereunder bearing interest at prime plus .5%. At March 31, 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. In June 1999, the Company paid the first of the
three installments on the promissory note held by the former stockholder of
Great Midwest. The second installment is due June 2000.
On February 15, 2000, Great Midwest executed an agreement, which was
expected to close in the second quarter of 2000, regarding the acquisition of
100% of the common stock of Texas Savings Life Insurance Company, a Texas life
insurance company. On April 7, 2000, Great Midwest exercised an option to
terminate the contract with the target and withdrew its application to purchase
from the Texas Department of Insurance.
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 cash from continuing operations, as well as
availability under its credit facilty, should be sufficient to fund its
operations and to make required debt and dividend payments for at least the next
12 months. There can be no assurance however, that the Company can 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.
11
<PAGE>
Year 2000 Readiness
The Company experienced no significant problems in its operations
relating to Year 2000 readiness in its information technology or in that of its
vendors. Although the Company continues to monitor its systems and those of its
vendors, the Company does not believe there will be any material impact on its
operations for Year 2000 issues.
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
The Company filed no reports on Form 8-K during the quarter ended March
31, 2000.
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: May 11, 2000 /s/ Charles L. Smith
------------------------------------------
Charles L. Smith
President and Chief Operating Officer
Date: May 11, 2000 /s/ Quinton L. Hiebert
------------------------------------------
Quinton L. Hiebert
Vice-President and Chief Financial Officer
12
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Name of Exhibit
------- ---------------
*27.1 Financial Data Schedule
* Filed electronically herewith
13
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
</LEGEND>
<CIK> 0000924963
<NAME> Summit Life Corporation
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<EXCHANGE-RATE> 1 1
<DEBT-HELD-FOR-SALE> 2,846,698 4,188,787
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 124,792 47,720
<MORTGAGE> 329,562 206,025
<REAL-ESTATE> 71,884 78,851
<TOTAL-INVEST> 4,798,781 5,884,466
<CASH> 946,586 1,902,252
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 406,651 660,160
<TOTAL-ASSETS> 6,621,620 9,254,789
<POLICY-LOSSES> 0 0
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 5,334,021 6,094,598
<NOTES-PAYABLE> 380,601 1,739,642
0 0
5 0
<COMMON> 22,676 21,843
<OTHER-SE> 835,053 1,212,770
<TOTAL-LIABILITY-AND-EQUITY> 6,621,620 9,254,789
29,271 83,172
<INVESTMENT-INCOME> 103,505 151,899
<INVESTMENT-GAINS> 24,723 2,763
<OTHER-INCOME> 5,305 18,140
<BENEFITS> 33,667 18,172
<UNDERWRITING-AMORTIZATION> 6,333 33,886
<UNDERWRITING-OTHER> 221,129 294,171
<INCOME-PRETAX> (98,325) (90,255)
<INCOME-TAX> 0 1,157
<INCOME-CONTINUING> (98,325) (89,098)
<DISCONTINUED> 0 10,781
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (98,325) (78,317)
<EPS-BASIC> (.05) (.04)
<EPS-DILUTED> (.05) (.04)
<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>
