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)
------------------------------------
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.
------------------------------------
The date of this Prospectus Supplement is August 7, 2001
On August 1, 2001, we filed with the Securities and Exchange Commission
certain financial information as of and for the period ended June 30, 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.
Six Months Ended
Year Ended December 31, June 30,
----------------------- -----------------------
1999 2000 2000 2001
-------- -------- -------- --------
(in thousands)
Statement of Operations Data:
Revenues $ 813 $ 571 $ 382 $ 496
Benefits, losses and expenses 1,704 975 469 588
Net Loss (884) (404) (87) (91)
Balance Sheet Data
As of June 30, 2001
--------------------------------------------------
As Adjusted (1)
------------------------------------
Actual Minimum Offering Maximum Offering
------ ---------------- ----------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $1,535 $1,695 $2,259
Total assets 6,349 6,509 7,073
Total liabilities 5,257 5,257 5,080
Stockholders' equity 1,092 1,252 1,993
-------------------------
(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-2
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 June 30, 2001 Compared to Three Months ended June 30, 2000
Revenue. Total revenues increased 100% from $219,248 to $439,046 for
the three months ended June 30, 2000 and June 30, 2001, respectively. Revenues
attributable to life insurance increased 422% from $32,607 to $170,247 for the
three months ended June 30, 2001, compared to the same period ended June 30,
2000. The increase was due primarily to the continued sale of insurance
contracts.
Investment income increased 206% from $90,083 for the three months
ended June 30, 2000 to $276,191 for the three months ended June 30, 2001,
primarily as a result of the sale of a communications tower lease for $186,000.
Net losses on trading securities of $17,431 were reported for June 30,
2001. We began trading securities in the fourth quarter of 2000 and are required
to report 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 decreased from $91,750 for the three months ended June 30,
2000 to $9,522 for the three months ended June 30, 2001. A one time gain of
$67,592 from the sale of real estate was recognized in the second quarter of
2000.
Costs and Expenses. Total expenses increased 82% from $207,874 to
$379,480 for the three months ended June 30, 2000 and 2001, respectively. Such
increase was primarily attributable to reserve increases associated with our
writing of new business.
Policy benefits decreased slightly from $26,883 to $22,211 for the
comparable periods. Policy reserves increased $150,907 for the comparable
periods. Depreciation and amortization increased from $12,301 to $28,528 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 increased 8% from $120,539 to $130,069 for the
comparable periods.
S-3
Income/Loss. We reported net income for the three months ended June 30,
2001 of $47,066, compared to a net loss for the three months ended June 30, 2000
of $1,126. We continued to increase revenues from life insurance and held
operating costs steady during the quarter.
We reported net income per share of $0.02 per share for the three
months ended June 31, 2001, compared to a net loss of $0.00 per share for the
three months ended June 30, 2000.
Six Months Ended June 30, 2001 Compared to Six Months ended June 30, 2000
Revenue. Total revenues increased 30% from $382,052 to $496,368 for the
six months ended June 30, 2000 and June 30, 2001, respectively. Revenues
attributable to life insurance increased 227% from $61,878 to $202,265 for the
six months ended June 30, 2001, compared to the same period ended June 30, 2000.
The increase was due primarily to the continued sale of insurance products.
Investment income increased 84% from $193,588 for the six months ended
June 30, 2000 to $356,289 for the three months ended June 30, 2001, primarily as
a result of the sale of a communications tower lease for $186,000.
Net losses on trading securities of $73,862 were reported for the
period ended June 30, 2001. We began trading securities in the fourth quarter of
2000 and are required to report 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 decreased from $97,055 for the six months ended June 30,
2000 to $18,506 for the six months ended June 30, 2001. A one time gain of
$67,592 from the sale of real estate was recognized in the second quarter of
2000.
Costs and Expenses. Total expenses increased 25% from $469,003 to
$587,743 for the six months ended June 30, 2000 and 2001, respectively. Such
increase was primarily attributable to reserve increases associated with our
writing of new business.
Policy benefits decreased from $60,550 to $57,900 for the comparable
periods. Policy reserves increased $133,949 for the comparable periods.
Depreciation and amortization increased from $30,367 to $57,485 for the six
months ended June 30, 2000 and 2001, respectively, as we continued to amortize
the block of business acquired with Great Midwest Life Insurance Company.
General expenses decreased 13% from $257,165 to $223,169 for the comparable
periods as a result of management cost containment programs.
Loss. We reported a net loss for the six months ended June 30, 2001 of
$91,375, compared to a net loss for the six months ended June 30, 2000 of
$86,951. We continued to increase revenues from life insurance and held
operating costs steady during the quarter.
We reported a net loss per share of $0.05 per share for the six months
ended June 31, 2001, compared to a net loss of $0.05 per share for the three
months ended June 30, 2000.
Liquidity and Capital Resources
Total assets were $6,349,059 at June 30, 2001, compared to $6,162,682
at December 31, 2000, an increase of 3.0%. The increase was due to the receipt
of new annuity deposits.
Total liabilities, primarily insurance reserves for future policyholder
benefits, were $5,257,232 at June 30, 2001, compared to $5,187,382 at December
31, 2000, an increase of 1%. The increase was due primarily to new annuity
deposits.
S-4
Total stockholders' equity was $1,091,827 at June 30, 2001, compared to
$975,300 at December 31, 2001, an increase of 12%. The increase was attributable
to the sale of 200,200 shares of common stock, sold pursuant to a public
offering of our stock.
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 includes deposits to policyholders' account
balances. The line of credit extends to July 2002, with amounts borrowed
thereunder bearing interest at prime plus .5%. At June 30, 2001 and as of the
date of this Report, $200,000 was outstanding under the line of credit.
On January 13, 1999, we acquired 100% of the outstanding common stock
of Great Midwest Life Insurance Company, 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 Life Insurance Company, our wholly owned subsidiary.
In addition, during the three months ended June 30, 2001, we paid the last of
the three installments on the promissory note held by a former stockholder of
Great Midwest.
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 sale of our common
stock, together with anticipated cash from continuing operations, should be
sufficient to fund our operations and to make required payments under our credit
facility 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 note at maturity. Our ability to fund 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.
Recent Events
On August 1, 2001, our wholly owned subsidiary, Great Midwest Life
Insurance Company acquired through an assumption reinsurance agreement 100% of
the inforce life insurance business of Presidential Life Insurance Company of
Dallas, Texas, for a net cash purchase price of approximately $165,000. The
acquired business consists primarily of individual life insurance business with
policy reserves and annual premium of approximately $780,000 and $120,000,
respectively.
S-5
Submission of Matters to Vote of Security Holders
We held our annual stockholders' meeting on May 10, 2001. Two proposals
were voted on by the stockholders: 1) election of directors, and 2) ratification
of the appointment of Grant Thornton LLP as independent auditors. All proposals
were approved by a majority of the votes cast at the meeting as follows:
(a) Two directors were elected to serve a three-year term.
James L. Smith and M. Dean Brown were each elected as a Class 2
director for a term expiring at the 2004 annual meeting:
James L. Brown: M. Dean Brown:
1,812,377 shares voted in favor 1,812,377 shares voted in favor
857 shares withheld 857 shares withheld
Charles L. Smith and Thomas D. Sanders, who are Class 1 directors
with terms expiring at the 2002 annual meeting, and Gary L. Ellis,
a Class 3 director whose term expires at the 2003 annual meeting,
were not up for reelection and continued on as directors.
(b) Ratification of the appointment of Grant Thornton LLP as
independent auditors:
In favor: 1,053,911
Against: 753,117
Abstain: 6,206
Financial Statements
Our unaudited consolidated financial statements as of and for the
period ended June 30, 2001 are provided on pages S-7 through S-11.
S-6
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2001 2000
------------ ------------
(Unaudited)
INVESTMENTS
Debt securities-held to maturity $ 328,075 $ 328,075
Debt securities-available for sale 2,482,137 2,426,607
Equity securities-trading 212,424 113,643
Equity securities-available for sale 12,500 8,915
Equity securities-other 66,788 63,663
Mortgages 716,175 734,220
Notes receivable 200,624 207,658
Short-term investments 0 0
Policy loans 32,823 33,382
Investment in limited partnerships 58,122 57,300
------------ ------------
4,109,668 3,973,463
CASH AND CASH EQUIVALENTS 1,535,080 1,436,338
RECEIVABLES
Accrued investment income 42,707 41,984
Advances to affiliates 10,300 9,928
------------ ------------
53,007 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 (116,478) (102,638)
------------ ------------
151,526 165,366
Land 56,000 56,000
------------ ------------
207,526 221,366
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 37,500 40,000
Deferred policy acquisition costs 49,527 57,527
Value of purchased insurance business 286,851 321,851
Deferred income taxes 37,241 37,241
Other 32,659 22,984
------------ ------------
443,778 479,603
------------ ------------
$ 6,349,059 $ 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
June 30, December 31,
2001 2000
------------ ------------
(Unaudited)
LIABILITIES
Policy reserves and policyholder funds $ 4,829,773 $ 4,708,295
Unpaid claims 18,779 175,951
Accounts payable 82,066 39,458
Accrued liabilities 13,549 15,424
Notes payable 313,065 248,254
Other liabilities 0 0
------------ ------------
5,257,232 5,187,382
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 24,678 22,676
Preferred stock, series A, $.001 par value, stated at
liquidation value 500,000 500,000
Preferred stock, series B, $1.00 par value 350,000 350,000
Preferred stock, series B subscribed 650,000 650,000
Additional paid-in capital 3,121,794 2,923,596
Common stock of parent held by subsidiary (95,000) (95,000)
Accumulated other comprehensive income (loss)
Unrealized appreciation (depreciation) of available 12,820 (19,882)
for sale securities
Accumulated deficit (2,822,465) (2,706,090)
Less preferred stock subscriptions receivable (650,000) (650,000)
------------ ------------
1,091,827 975,300
------------ ------------
$ 6,349,059 $ 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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
Insurance premiums $ 177,170 $ 43,488 $ 220,985 $ 82,305
Reinsurance premium ceded (6,923) (10,881) (18,720) (20,427)
----------- ----------- -----------
Net premium income 170,247 32,607 202,265 61,878
Investment activity
Investment income 276,191 90,083 356,289 193,588
Net realized gains on sale of available for sale securities 517 4,808 (6,830) 29,531
Net losses on trading securities (17,431) -- (73,862) --
Other 9,522 91,750 18,506 97,055
----------- ----------- ----------- -----------
439,046 219,248 496,368 382,052
Benefits, losses and expenses
Policy benefits 22,211 26,883 57,900 60,550
Change in policy reserves 189,697 38,790 228,620 94,671
Interest expense 5,375 4,678 10,201 13,248
Taxes, licenses and fees 3,600 4,683 10,368 13,002
Depreciation and amortization 28,528 12,301 57,485 30,367
General, administrative and other operating expenses 130,069 120,539 223,169 257,165
----------- ----------- ----------- -----------
379,480 207,874 587,743 469,003
----------- ----------- ----------- -----------
Earnings (Loss)
before income taxes 59,566 11,374 (91,375) (86,951)
Income tax provision -- -- -- --
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ 59,566 $ 11,374 $ (91,375) $ (86,951)
Preferred Stock Dividend Requirement 12,500 12,500 25,000 25,000
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) APPLICABLE TO COMMON
SHARES $ 47,066 $ (1,126) $ (116,375) $ (111,951)
=========== =========== =========== ===========
Earnings (Loss) per common share -
Basic and diluted
$ 0.02 $ 0.00 $ (0.05) $ (0.05)
=========== =========== =========== ===========
Weighted average outstanding common shares,
basic and diluted 2,259,605 2,248,605 2,254,105 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
Six Months Ended June 30, 2001
(Unaudited)
Common Stock Preferred Stock "A" Preferred Stock "B"
------------ ------------------- -------------------
Shares Liquid- Shares Liquid-
Shares Par Out- ation Out- ation
Total Issued Value standing Value standing Value
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at January 1, 2001 $ 975,300 2,267,605 $ 22,676 5,000 $ 500,000 350,000 $ 350,000
Issuance of common stock 200,200 200,200 2,002 -- -- -- --
Dividends on preferred stock (25,000) -- -- -- -- -- --
Issuance of Series B
preferred -- -- -- -- -- -- --
Comprehensive income
Net income (loss) (91,375) -- -- -- -- -- --
Other comprehensive inc
(loss)
Unrealized gain on 32,702 -- -- -- -- -- --
investments ------------
Comprehensive inc
(loss) (58,673)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2001 $ 1,091,827 2,467,805 $ 24,678 5,000 $ 500,000 350,000 $ 350,000
============ ============ ============ ============ ============ ============ ============
Common Accumulated
Stock of Other Preferred
Additional Parent Held Comprehensive Preferred stock
Paid-in by Income stock subscriptions Accumulated
Capital Subsidiary (Loss) subscribed receivable Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance at January 1, 2001 $ 2,923,596 $ (95,000) $ (19,882) $ 650,000 ($ 650,000) $ (2,706,090)
Issuance of common stock 198,198 -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- (25,000)
Issuance of Series B
preferred -- -- -- -- -- --
Comprehensive income
Net income (loss) -- -- -- -- -- (91,375)
Other comprehensive inc
(loss)
Unrealized gain on -- -- 32,702 -- -- --
investments
Comprehensive inc
(loss)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2001 $ 3,121,794 $ (95,000) $ 12,820 $ 650,000 ($ 650,000) $ (2,822,465)
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these interim financial
statements
S-10
Summit Life Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------------------------
2001 2000
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ (70,722) $ (167,400)
Net cash provided by (used in) investing activities (5,359) 1,803,225
Net cash provided by (used in) financing activities 174,823 (316,617)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 98,742 1,319,208
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 $ 1,535,080 $ 2,254,954
=========== ===========
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 and six month periods ended
June 30, 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.
The accompanying notes are an integral part of these interim financial
statements
S-11