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, 2002
[ ] 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 (I.R.S. Employer
of incorporation or organization) identification No.)
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 14, 2002 was 2,248,605, and 423,200 shares of common stock were
subscribed and unissued but deemed to be issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2002 (unaudited) and
December 31, 2001 ................................................. 3
Consolidated Statements of Operation - Three months ended
March 31, 2002 and 2001 (unaudited) ............................... 5
Consolidated Statement of Stockholders' Equity - Three months ended
March 31, 2002 (unaudited) ........................................ 6
Condensed Consolidated Statement of Cash Flows - Three months ended
March 31, 2002 and 2001 (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 ................................ 11
Signatures .............................................................. 12
2
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
INVESTMENTS
Debt securities-held to maturity $ 328,782 $ 279,871
Debt securities-available for sale 1,849,551 2,180,629
Equity securities-trading 87,796 84,934
Equity securities-available for sale 329,052 291,248
Equity securities-other 66,788 66,788
Mortgages 686,772 697,374
Notes receivable 493,855 294,659
Short-term investments 0 0
Policy loans 108,993 113,865
Limited partnerships 32,404 30,800
----------- -----------
3,983,993 4,040,168
CASH AND CASH EQUIVALENTS 1,748,898 1,661,410
RECEIVABLES
Accrued investment income 30,709 54,993
Other 36,470 37,583
----------- -----------
67,179 92,576
PROPERTY AND EQUIPMENT-AT COST
Building and improvements 129,419 129,419
Furniture and equipment 120,848 119,198
Automobiles 22,015 22,015
----------- -----------
272,282 270,632
Less accumulated depreciation (135,561) (130,870)
----------- -----------
136,721 139,762
Land 56,000 56,000
----------- -----------
192,721 195,762
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 33,750 35,000
Deferred policy acquisition costs 125,059 107,765
Value of purchased insurance business 340,201 355,966
Deferred income taxes 37,240 37,240
Other 114,117 103,208
----------- -----------
650,367 639,179
----------- -----------
$ 6,643,158 $ 6,629,095
=========== ===========
The accompanying notes are an integral part of these interim financial
statements
3
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2002 2001
------------ ------------
(Unaudited)
LIABILITIES
Policy reserves and policyholder funds $ 5,378,539 $ 5,364,682
Unpaid claims 16,000 24,971
Accounts payable 74,670 63,116
Accrued liabilities 8,636 8,233
Notes payable 117,665 111,206
Other liabilities 0 0
------------ ------------
5,595,510 5,572,208
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, $1.00 par value 350,000 350,000
Common stock subscribed 423,200 422,200
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 13,304 13,709
sale securities
Accumulated deficit (3,090,128) (3,080,294)
------------ ------------
1,047,648 1,056,887
------------ ------------
$ 6,643,158 $ 6,629,095
============ ============
The accompanying notes are an integral part of these interim financial
statements
4
Summit Life Corporation and Subsidiaries
Consolidated Statements of Operation
(Unaudited)
Three Months Ended
March 30,
--------------------------
2002 2001
----------- -----------
Revenues
Insurance premiums $ 58,571 $ 43,815
Reinsurance premium ceded 15,169 (11,797)
----------- -----------
Net premium income 73,740 32,018
Investment activity
Investment income 67,399 80,098
Net realized losses on sale of available for sale securities -- (7,347)
Net gains (losses) on trading securities 14,063 (56,431)
Other 18,685 8,984
----------- -----------
173,887 57,322
Benefits, losses and expenses
Policy benefits 54,422 35,689
Change in policy reserves 17,870 38,923
Interest expense 74 4,826
Taxes, licenses and fees 5,581 6,768
Depreciation and amortization 23,697 28,957
General, administrative and other operating expenses 82,077 93,100
----------- -----------
183,721 208,263
----------- -----------
Earnings (Loss)
before income taxes (9,834) (150,941)
Provision for income taxes -- --
----------- -----------
NET EARNINGS (LOSS) $ (9,834) $ (150,941)
Preferred Stock Dividend Requirement 12,500 12,500
----------- -----------
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHARES $ (22,334) $ (163,441)
=========== ===========
Earnings (Loss) per common share -
Basic and diluted $ (0.01) $ (0.07)
=========== ===========
Weighted average outstanding common shares,
basic and diluted 2,670,861 2,248,605
=========== ===========
The accompanying notes are an integral part of these interim financial
statements
5
Summit Life Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ending March 31, 2002
(Unaudited)
Series A cumulative Series B convertible
Common stock preferred stock preferred stock
------------------------- ------------------------- -------------------------
Shares Par Shares Liquidation Shares Liquidation
Total issued value issued value issued value
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at January 1, 2002 $ 1,056,887 2,267,605 $ 22,676 5,000 $ 500,000 350,000 $ 350,000
Common stock subscribed,
not issued 1,000 -- -- -- -- -- --
Dividends on Series A
preferred stock -- -- -- -- -- -- --
Comprehensive Income
Net Income (loss) (9834) -- -- -- -- -- --
Other comprehensive income
(loss)
Unrealized gain on
investments, net (405)
-----------
Comprehensive Income
(loss) (10,239)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2002 $ 1,047,648 2,267,605 $ 22,676 5,000 $ 500,000 350,000 $ 350,000
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these interim financial
statements
6
Summit Life Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY CONTINUED
Three Months Ending March 31, 2002
(Unaudited)
Common
stock of Accumulated
Additional parent other
paid-in held by Stock comprehensive Accumulated
capital subsidiary subscribed income (loss) deficit
----------- ----------- ----------- ----------- -----------
Balance at January 1, 2002 $ 2,923,596 (95,000) $ 422,200 $ 13,709 $(3,080,294)
Common stock subscribed,
not issued -- -- 1,000 -- --
Dividends on Series A
preferred stock -- -- -- -- --
Comprehensive Income
Net Income (loss) -- -- -- -- (9834)
Other comprehensive income
(loss)
Unrealized gain on
investments, net (405)
Comprehensive Income
(loss)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 2002 $ 2,923,596 $ (95,000) $ 423,200 $ 13,304 $(3,090,128)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these interim financial
statements
Summit Life Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
--------------------------
2002 2001
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ 46,431 $ (345,268)
Net cash provided by (used in) investing activities 52,415 173,838
Net cash provided by (used in) financing activities (11,358) 186,126
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 87,488 14,696
Cash and cash equivalents at the beginning of the period 1,661,410 1,436,338
----------- -----------
Cash and cash equivalents at the end of the period $ 1,748,898 $ 1,451,034
=========== ===========
The accompanying notes are an integral part of these interim financial
statements
7
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, 2002
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2002. For further information, refer to the consolidated
annual financial statements and footnotes thereto for the year ended December
31, 2001.
8
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, 2001
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.
Results of Operations
Three Months Ended March 31, 2002 Compared to Three Months ended March 31, 2001
Revenue. Total revenues increased 203% from $57,322 to $173,887 for the
three months ended March 31, 2001 and March 31, 2002, respectively. Revenues
attributable to life insurance increased 130% from $32,018 to $73,740 for the
three months ended March 31, 2002, compared to the same period ended March 31,
2001. The increase was due primarily to implementation of the Company's
marketing and sales programs and the acquisition of Presidential that was
completed in August 2001.
Investment income decreased from $80,098 for the three months ended March
31, 2001 to $67,399 for the three months ended March 31, 2002, primarily as a
result of interest rate decreases implemented by the Federal Reserve during 2001
which reduced rates by approximately 4.5%.
Net gains on trading securities of $14,063 were reported for the first
quarter of 2002, compared to net losses on trading securities of $56,431 for
March 31, 2001, an improvement of $70,494. The Company began trading securities
in the fourth quarter of 2000 and is 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 increased 107% from $8,984 for the three months ended March
31, 2001 to $18,685 for the three months ended March 31, 2002, due to the
recognition of additional revenues from administrative contracts and other
sources.
9
Costs and Expenses. Total expenses decreased 12% from $208,263 to $183,721
for the three months ended March 31, 2001 and 2002, respectively. Such decrease
was primarily attributable to outsourcing of certain functions as well as
reduced depreciation and amortization expenses. Management continued its cost
containment program in other areas as well.
Policy benefits increased from $35,689 to $54,422 for the comparable
periods, due in part to the Presidential acquisition, which doubled in-force
life insurance business. Policy reserves decreased $21,053 for the comparable
periods. Interest expense decreased from $4,826 to $74 for the comparable
periods due to continuing reduction of Company debt. Depreciation and
amortization decreased from $28,957 to $23,697 for the three months ended March
31, 2001 and 2002, respectively, as the Company continued to amortize the block
of business associated with the acquisition of Great Midwest Life Insurance
Company. General expenses decreased 12% from $93,100 to $82,077 as a result of
management's cost containment programs. Such decrease was offset in part by
certain promotional expenses designed to encourage agents to produce new
business for the Company.
Losses. The Company reported a net loss for the three months ended March
31, 2002 of $9,834, compared to a net loss for the three months ended March 31,
2001 of $150,941, an improvement of $141,107, or 93%. The Company has continued
its cost containment programs, recognizing expense reductions of approximately
$350,000 since 1999. The Company expects its marketing programs will continue to
build revenues and will complement any acquisitions which the Company may be
able to complete.
The Company reported a net loss per share of $0.01 per share for the three
months ended March 31, 2002, compared to a net loss of $0.07 per share for the
three months ended March 31, 2001.
Liquidity and Capital Resources
Total assets remained fairly flat for the three months ended March 31,
2002, showing only a slight increase over year end numbers. Total liabilities
(primarily insurance reserves for the future policy holder benefits) also
remained flat, increasing t $5,595,510 at March 31, 2002 compared to $5,572,208
at December 31, 2001.
Total stockholders' equity was $1,047,648 at March 31, 2002, compared to
$1,056,887 at December 31, 2001, reflecting the small operating loss sustained
during the first quarter, an increase of 21%. The increase was attributable to
an offering of the Company's common stock which was offset by operating losses
during 2001.
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.
10
The Company currently 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 Company's liquidity position showed
improvement from the previous comparable quarter, with a 495% net increase in
cash and cash equivalents.
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 cash from continuing operations should be
sufficient to fund its operations and to make 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. 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: none.
(b) Reports on Form 8-K: none.
11
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 14, 2002 /s/Charles L. Smith
----------------------
Charles L. Smith
President and Chief Operating Officer
Date: May 14, 2002 /s/Quinton L. Hiebert
----------------------
Quinton L. Hiebert
Chief Accounting Officer
12