PROSPECTUS SUPPLEMENT Filed pursuant to Rule 424(b)(3)
(TO PROSPECTUS DATED MAY 14, 2001) Registration No. 333-55722
SUMMIT LIFE CORPORATION
200,000 Minimum, 1,000,000 Maximum Shares of Common Stock
Offering Price $1.00 Per Share
This Prospectus Supplement supplements our Prospectus dated May 14,
2001. Accordingly, you should read this Prospectus Supplement in conjunction
with the Prospectus. Capitalized terms used in this Prospectus Supplement have
the meanings specified in the Prospectus.
(continued on following page)
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Neither the Securities and Exchange Commission nor any state commission
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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The date of this Prospectus Supplement is May 21, 2001
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S-2
On May 15, 2001, we filed with the Securities and Exchange Commission
certain financial information as of and for the three months ended March 31,
2001, the material portions of which are set forth below.
Summary Financial Data
Operating Data
The following table sets forth selected information regarding operating
results for the periods indicated.
Year Ended December 31, Three Months Ended March 31,
------------------------------- -------------------------------
1999 2000 2000 2001
------------- -------------- ------------- --------------
(in thousands)
Statement of Operations Data:
Revenues $ 813 $ 571 $ 163 $ 57
Benefits, losses and expenses 1,704 975 261 208
Net Loss (884) (404) (98) (151)
Balance Sheet Data
As of March 31, 2001
---------------------------------------------------
As Adjusted (1)
Actual -------------------------------------
Minimum Offering Maximum Offering
---------------- ----------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $1,451 $1,611 $2,174
Total assets 6,317 6,477 7,040
Total liabilities 5,452 5,452 5,275
Stockholders' equity 865 1,025 1,765
-------------------------
(1) Gives effect to the sale of the minimum and maximum number of shares of
common stock offered hereby, and the application of the estimated proceeds
therefrom. See "USE OF PROCEEDS" and "CAPITALIZATION" in our prospectus dated
May 14, 2001.
S-3
Results of Operations
This prospectus supplement includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, 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 our 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
we believe that the expectations reflected in such forward-looking statements
are reasonable, we 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 our expectations 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 our annual
report on Form 10-KSB for the year ended December 31, 2000 under "Item
6--Management's Discussion and Analysis or Plan of Operation," as well as the
risks disclosed in our prospectus dated May 14, 2001, of which this prospectus
supplement is a part. All subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in
their entirety by these cautionary statements. We assume no duty to update or
revise our 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.
Three Months Ended March 31, 2001 Compared to Three Months ended March 31, 2000
Revenue. Total revenues decreased 65% from $162,804 to $57,322 for the
three months ended March 31, 2000 and March 31, 2001, respectively. Revenues
attributable to life insurance increased 9% from $29,271 to $32,018 for the
three months ended March 31, 2001, compared to the same period ended March 31,
2000. The increase was due primarily to implementation of our marketing and
sales programs.
Investment income decreased from $103,505 for the three months ended
March 31, 2000 to $80,098 for the three months ended March 31, 2001, primarily
as a result of surrenders during the prior year which decreased our asset base.
Income from the sale of investments decreased from $24,723 for the
three months ended March 31, 2000 to a loss of $7,347 for the three months ended
March 31, 2001. Net losses on trading securities of $56,431 were reported for
March 31, 2001. We began trading securities in the fourth quarter of 2000 and
are required to report such unrealized gains and losses in operations. The
realized gain or loss for each trading security may differ materially depending
on the date of sale, the underlying performance of the represented company and
other market conditions.
Other income increased 69% from $5,305 for the three months ended March
31, 2000 to $8,984 for the three months ended March 31, 2001, due to the
recognition of additional revenues from administrative service contracts.
Costs and Expenses. Total expenses decreased 20% from $261,129 to
$208,263 for the three months ended March 31, 2000 and 2001, respectively. Such
decrease was primarily attributable to promotional expenses associated with a
change in our investor relations firm, as well as efforts to reduce legal and
professional expenses. Management continued its cost containment program in
other areas as well.
S-4
Policy benefits increased slightly from $33,667 to $35,689 for the
comparable periods. Policy reserves decreased $16,958 for the comparable
periods. Interest expense decreased 44% from $8,570 to $4,826 for the comparable
periods due to continuing reduction of debt. Depreciation and amortization
increased from $18,066 to $28,957 for the three months ended March 31, 2000 and
2001, respectively, as we continued to amortize the block of business acquired
with Great Midwest Life Insurance Company. General expenses decreased 32% from
$136,626 to $93,100 as a result of the reduced promotional, legal and accounting
expenses and due to management's cost containment programs.
Losses. We reported a net loss for the three months ended March 31,
2001 of $150,941, compared to a net loss for the three months ended March 31,
2000 of $98,325. We reported trading losses during the quarter which management
believes are temporary.
We reported a net loss of $0.07 per share for the three months ended
March 31, 2001, compared to a net loss of $0.05 per share for the three months
ended March 31, 2000.
Liquidity and Capital Resources
Total assets were $6,317,251 at March 31, 2001, compared to $6,162,682
at December 31, 2000, an increase of 2.5%. The increase was due to the receipt
of new annuity deposits during the first quarter.
Total liabilities, primarily insurance reserves for future policyholder
benefits, were $5,451,871 at March 31, 2001, compared to $5,187,382 at December
31, 2000, an increase of 5%. The increase was due primarily to new annuity
deposits received during the first quarter.
Total stockholders' equity was $865,380 at March 31, 2001, compared to
$975,300 at December 31, 2000, a decrease of 11.3%. The decrease was
attributable to the stock market volatility which impacted our first quarter
results.
The principal requirements for liquidity in connection with our
operations are our contractual obligations to policyholders and annuitants. Our
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 we currently have a $200,000 bank line of credit, we fund most
of our activity directly from cash flow from operations and cash flow from
financing activities, which include deposits to policyholders' account balances.
The line of credit extends to July 2001, with amounts borrowed thereunder
bearing interest at prime plus .5%. At March 31, 2001, $150,000 was outstanding
under the line of credit and, as of March 31, 2001, the Company has drawn the
$50,000 remaining under the credit facility.
On January 13, 1999, we 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. We 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
we 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, we have paid two of the three installments on the
promissory note held by a former stockholder of Great Midwest.
S-5
We have made and intend to make substantial expenditures in connection
with our subsidiary's acquisition and marketing programs. Historically, we have
funded these expenditures from cash flow from operations.
We believe that the liquidity resulting from the transactions described
above, together with anticipated cash from continuing operations, should be
sufficient to fund our operations and to make required payments under our 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.
We may not, however, generate sufficient cash flow for these purposes or to
repay the notes at maturity. Our ability to fund our operations and to make
scheduled principal and interest payments will depend on our future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Financial Statements
Our unaudited consolidated financial statements as of and for the three
months ended March 31, 2001 are provided on pages S-7 through S-12.
S-6
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
March 31, 2001 December 31, 2000
----------------- -----------------
(Unaudited)
INVESTMENTS
Debt securities-held to maturity $ 328,075 $ 328,075
Debt securities-available for sale 2,484,986 2,426,607
Equity securities-trading 250,140 113,643
Equity securities-available for sale 5,000 8,915
Equity securities-other 63,663 63,663
Mortgages 725,290 734,220
Notes receivable 204,170 207,658
Short-term investments 0 0
Policy loans 32,434 33,382
Investment in limited
partnerships 58,122 57,300
----------------- -----------------
4,151,880 3,973,463
CASH AND CASH EQUIVALENTS 1,451,034 1,436,338
RECEIVABLES
Accrued investment income 33,039 41,984
Advances to affiliates 10,000 9,928
----------------- -----------------
43,039 51,912
PROPERTY AND EQUIPMENT-AT COST
Building and improvements 129,419 129,419
Furniture and equipment 116,570 116,570
Automobiles 22,015 22,015
----------------- -----------------
268,004 268,004
Less accumulated depreciation (109,560) (102,638)
----------------- -----------------
158,444 165,366
Land 56,000 56,000
----------------- -----------------
214,444 221,366
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 38,750 40,000
Deferred policy acquisition costs 53,527 57,527
Value of purchased insurance business 304,351 321,851
Deferred income taxes 37,241 37,241
Other 22,985 22,984
----------------- -----------------
456,854 479,603
----------------- -----------------
$ 6,317,251 $ 6,162,682
================= =================
The accompanying notes are an integral part of these interim financial
statements
S-7
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2001 December 31, 2000
----------------- --------------------
(Unaudited)
LIABILITIES
Policy reserves and policyholder funds $ 4,662,361 $ 4,708,295
Unpaid claims 78,445 175,951
Accounts payable 13,031 39,458
Accrued liabilities 201,257 15,424
Notes payable 496,777 248,254
Other liabilities 0 0
----------------- -----------------
5,451,871 5,187,382
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 22,676 22,676
Preferred stock, series A, $.001 par value, stated at
liquidation value 500,000 500,000
Preferred stock, series B, $.001 par value, stated at
liquidation value 350,000 350,000
Preferred stock, series B subscribed 650,000 650,000
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 available for
sale securities 21,139 (19,882)
Accumulated deficit (2,857,031) (2,706,090)
Less preferred stock subscriptions receivable (650,000) (650,000)
----------------- -----------------
865,380 975,300
----------------- -----------------
$ 6,317,251 $ 6,162,682
================= =================
The accompanying notes are an integral part of these interim financial
statements
S-8
Summit Life Corporation and Subsidiaries
Consolidated Statements of Operation
(Unaudited)
Three Months Ended
March 31,
--------------------------
2001 2000
----------- -----------
Revenues
Insurance premiums $ 43,815 $ 40,152
Reinsurance premium ceded (11,797) (10,881)
----------- -----------
Net premium income 32,018 29,271
Investment activity
Investment income 80,098 103,505
Net realized gains on sale of available
for sale securities (7,347) 24,723
Net losses on trading securities (56,431) --
Other 8,984 5,305
----------- -----------
57,322 162,804
Benefits, losses and expenses
Policy benefits 35,689 33,667
Change in policy reserves 38,923 55,881
Interest expense 4,826 8,570
Taxes, licenses and fees 6,768 8,319
Depreciation and amortization 28,957 18,066
General, administrative and other operating expenses 93,100 136,626
----------- -----------
208,263 261,129
----------- -----------
Earnings (Loss) before income taxes (150,941) (98,325)
Income tax provision -- --
----------- -----------
NET EARNINGS (LOSS) $ (150,941) $ (98,325)
Preferred Stock Dividend Requirement 12,500 12,500
----------- -----------
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHARES $ (163,441) $ (110,825)
=========== ===========
Earnings (Loss) per common share
Basic and diluted $ (0.07) $ (0.05)
=========== ===========
Weighted average outstanding common shares,
basic and diluted 2,248,605 2,248,605
=========== ===========
The accompanying notes are an integral part of these interim financial
statements
S-9
Summit Life Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 2001
(Unaudited)
Common Stock Preferred Stock "A" Preferred Stock "B"
------------ ------------------- -------------------
Shares Shares Liquidation Shares Liquidation
Total issued Par value issued value issued value
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at January 1, 2001 $ 975,300 2,267,605 $ 22,676 5,000 $ 500,000 350,000 $ 350,000
Dividends on preferred stock -- -- -- -- -- -- --
Issuance of Series B preferred -- -- -- -- -- -- --
Comprehensive income
Net income (loss) (150,941) -- -- -- -- -- --
Other comprehensive inc. (loss)
Unrealized gain on investments 41,021 -- -- -- -- -- --
-----------
Comprehensive inc. (loss) (109,920)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2001 $ 865,380 2,267,605 $ 22,676 5,000 $ 500,000 350,000 $ 350,000
=========== =========== =========== =========== =========== =========== ===========
Common Accumulated Preferred
Additional stock of Preferred other stock
paid-in parent held stock comprehensive Accumulated subscriptions
capital by subsidiary subscribed income (loss) deficit receivable
----------- ----------- ----------- ----------- ----------- -----------
Balance at January 1, 2001 $ 2,923,596 ($ 95,000) $ 650,000 ($ 19,882) ($2,706,090) ($ 650,000)
Dividends on preferred stock -- -- -- -- -- --
Issuance of Series B preferred -- -- -- -- -- --
Comprehensive income
Net income (loss) -- -- -- -- (150,941) --
Other comprehensive inc. (loss)
Unrealized gain on investments -- -- -- 41,021 -- --
Comprehensive inc. (loss)
----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2001 $ 2,923,596 ($ 95,000) $ 650,000 $ 21,139 ($2,857,031) ($ 650,000)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these interim financial
statements
S-10
Summit Life Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
--------------------------
2001 2000
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ (345,268) $ (206,069)
Net cash provided by (used in) investing activities 173,838 321,968
Net cash provided by (used in) financing activities 186,126 (105,059)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 14,696 10,840
Cash and cash equivalents at the beginning of the period 1,436,338 935,746
----------- -----------
Cash and cash equivalents at the end of the period $ 1,451,034 $ 946,586
=========== ===========
The accompanying notes are an integral part of these interim financial
statements
S-11
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, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001. For further information, refer to the consolidated
annual financial statements and footnotes thereto for the year ended December
31, 2000.
S-12