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 November 15, 2001
On November 14, 2001, we filed with the Securities and Exchange
Commission certain financial information as of and for the period ended
September 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.
Nine Months Ended
Year Ended December 31, September 30,
---------------------------- ----------------------------
1999 2000 2000 2001
----------- ----------- ----------- -----------
(in thousands)
Statement of Operations Data:
Revenues $ 813 $ 571 $ 543 $ 595
Benefits, losses and expenses 1,704 975 704 740
Net Loss (884) (404) (161) (145)
Balance Sheet Data
As of September 30, 2001
-----------------------------------------------------
As Adjusted (1)
---------------------------------------
Actual Minimum Offering Maximum Offering
------ ---------------- ----------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $1,878 $2,038 $2,601
Total assets 6,849 7,009 7,572
Total liabilities 5,556 5,556 5,379
Stockholders' equity 1,293 1,453 2,193
-------------------------
(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 prospectus
supplement, 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 assumes 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.
Recent Events
On August 1, 2001, our wholly owned subsidiary, Great Midwest Life
Insurance Company, acquired from Presidential Life Insurance Company of Dallas,
Texas a block of approximately 1,400 life insurance policies with estimated
annual premium of $120,000 for a purchase price of $85,000. The acquisition
resulted in the transfer of liabilities in the amount of $712,000 and assets in
the amount of $627,000 to Great Midwest. The purchase was funded with cash flow
from Great Midwest's operations. The purchase increased policies serviced by
more than 200% and in-force life insurance increased $14.8 million, or 106%. We
expect that the acquisition will be immediately accretive to earnings.
Three Months Ended September 30, 2001 Compared to Three Months ended
September 30, 2000
Revenue. Total revenues decreased from $160,647 to $98,509 for the
three months ended September 30, 2000 and September 30, 2001, respectively. The
decrease in total revenues was directly attributable to unrealized holding
losses on trading securities which we believe were impacted by the terrorist
acts of September 11, 2001. Revenues attributable to life insurance increased
89% from $52,692 to $99,622 for the three months ended September 30, 2001,
compared to the same period ended September 30, 2000. The increase was due
primarily to the acquisition of the block of insurance policies from
Presidential Life during the quarter. The increase was also attributable to the
recruiting of new agents, which has increased new policy issue by 98% on an
annualized basis. We expect that the acquisition will improve earnings over the
next twelve months.
Investment income decreased from $92,233 for the three months ended
September 30, 2000 to $73,906 for the three months ended September 30, 2001,
primarily as a result of interest rate decreases by the Federal Reserve and
other entities.
S-3
Net losses, mainly, unrealized holding losses, on trading securities of
$104,479 were reported for the three months ended September 30, 2001. The
terrorist attacks of September 11, 2001 severely impacted the market and reduced
equity valuations throughout most business sectors. We continue to anticipate a
recovery in the valuation of our equity portfolio. 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 increased from $6,126 for the three months ended September
30, 2000 to $29,460 for the three months ended September 30, 2001.
Costs and Expenses. Total expenses decreased 35% from $234,590 to
$152,560 for the three months ended September 30, 2000 and 2001, respectively.
Such decreases were primarily attributable to continuing cost containment
measures taken by us.
Policy benefits increased from $21,053 to $48,697 for the comparable
periods. Policy reserves decreased $70,317 for the comparable periods.
Depreciation and amortization increased from $17,726 to $31,985 for the three
months ended September 30, 2000 and 2001, respectively, as we continued to
amortize the block of business acquired with Great Midwest. General expenses
decreased 37% from $105,875 to $67,209 for the comparable periods as a result of
our cost containment programs. Costs associated with the acquisition of the
policies from Presidential Life were capitalized and will be amortized over the
expected life of the policies.
Income/Loss. We reported a net loss for the three months ended
September 30, 2001 of $54,051, a reduction in loss compared to the net loss for
the three months ended September 30, 2000 of $73,943. We continued to increase
revenues from life insurance and reduce operating costs during the quarter. We
expect that the acquisition of the policies from Presidential Life will be
accretive to earnings and believe the cost containment programs have been
effective in reducing general expenses.
We reported a net loss per share of $0.03 per share for the three
months ended September 30, 2001, compared to a net loss of $0.04 per share for
the three months ended September 30, 2000. Unrealized holding losses from
trading securities in our portfolio represented a loss of $.04 per share for the
quarter while our other operations represented a gain of $.01 per share during
the same period. We expect that the acquisition of the policies from
Presidential Life will contribute to earnings and believe the cost containment
programs currently in place will continue to be effective in containing general
expenses.
Nine Months Ended September 30, 2001 Compared to Nine Months ended
September 30, 2000
Revenue. Total revenues increased 10% from $542,700 to $594,877 for the
nine months ended September 30, 2000 and September 30, 2001, respectively.
Revenues attributable to life insurance increased 163% from $114,570 to $301,887
for the nine months ended September 30, 2001, compared to the same period ended
September 30, 2000. The increase was due primarily to the acquisition of the
block of insurance policies from Presidential Life during the quarter and
continued sale of new insurance products.
Investment income increased 50% from $285,821 for the nine months ended
September 30, 2000 to $430,195 for the nine months ended September 30, 2001,
primarily as a result of the sale of a communications tower lease in the first
quarter.
Net losses, mainly, unrealized holding losses, on trading securities of
$178,341 were reported for the period ended September 30, 2001. The terrorist
attacks of September 11, 2001 severely impacted the market and reduced equity
valuations throughout most business sectors. We continue to anticipate a
recovery in the valuation of our equity portfolio. 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.
S-4
Other income decreased from $103,182 for the nine months ended
September 30, 2000 to $47,966 for the nine months ended September 30, 2001. A
one time gain of $67,592 from the sale of real estate was recognized in the
second quarter of 2000. Excluding the one time gain, other income increased 35%.
Costs and Expenses. Total expenses increased 5% from $703,593 to
$740,304 for the nine months ended September 30, 2000 and 2001, respectively.
Such increase was primarily attributable to reserve increases associated with
the new business written by us.
Policy benefits increased from $81,603 to $106,597 for the comparable
periods. Policy reserves increased $63,632 for the comparable periods.
Depreciation and amortization increased from $48,093 to $89,470 for the nine
months ended September 30, 2000 and 2001, respectively, as we continue to
amortize the block of business acquired with Great Midwest and deferred
acquisition costs associated with new business. General expenses decreased 20%
from $363,040 to $290,378 for the comparable periods as a result of management
cost containment programs. Costs associated with the acquisition of the policies
from Presidential Life were capitalized and will be amortized over the expected
life of the policies.
Loss. We reported a net loss for the nine months ended September 30,
2001 of $145,427, a reduction of 10% compared to the net loss for the nine
months ended September 30, 2000 of $160,893. We continue to increase revenues
from life insurance and held operating costs steady during the period. We expect
that the acquisition of the policies from Presidential Life will improve
earnings and believe the cost containment programs have been effective in
reducing general expenses.
We reported a net loss per share of $0.08 per share for the nine months
ended September 30, 2001, compared to a net loss of $0.09 per share for the nine
months ended September 30, 2000. Unrealized holding losses from trading
securities in our portfolio resulted in a loss of $.08 per share for the nine
months while the our other operations resulted in breakeven results of $.00 per
share. We expect that the acquisition of the policies from Presidential Life
will contribute to earnings and believe the cost containment programs have been
effective in reducing general expenses.
Liquidity and Capital Resources
Total assets were $6,849,138 at September 30, 2001, compared to
$6,162,682 at December 31, 2000, an increase of 11.0%. The increase was due to
the acquisition of the policies from Presidential Life and the receipt of new
annuity deposits.
Total liabilities (primarily insurance reserves for future policyholder
benefits) were $5,556,230 at September 30, 2001, compared to $5,187,382 at
December 31, 2000, an increase of 7%. The increase was due primarily to the
acquisition of the policies from Presidential Life and new annuity deposits.
Total stockholders' equity was $1,292,908 at September 30, 2001,
compared to $975,300 at December 31, 2001, an increase of 33%. The increase was
attributable to the ongoing public offering of the our stock. A total of 421,200
shares were sold through September 30, 2001.
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.
S-5
On August 1, 2001, Great Midwest acquired from Presidential Life, a
block of approximately 1,400 life insurance policies with estimated annual
premium of $120,000 for a purchase price of $85,000. The acquisition resulted in
the transfer of liabilities in the amount of $712,000 and assets in the amount
of $627,000 to Great Midwest. The purchase was funded with cash flow from Great
Midwest's operations. The purchase increased policies serviced by more than 200%
and in-force life insurance increased $14.8 million, or 106%.
On September 28, 2001, the investor who had subscribed for an aggregate
1,000,000 shares of our Series B preferred stock did not make the final payment
due with respect to his subscription. Under the terms of his subscription
agreement, pursuant to which the investor was deemed to have been issued only
that number of shares that were fully paid, a total of 350,000 shares of Series
B preferred stock was deemed to be sold, and the subscription receivable of
$650,000 was canceled.
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 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. Our ability to fund our operations and
to make scheduled dividend 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
period ended September 30, 2001 are provided on pages S-7 through S-11.
S-6
Summit Life Corporation and Subsidiaries
Consolidated Balance Sheets
ASSETS
September 30, 2001 December 31, 2000
------------------- -------------------
(Unaudited)
INVESTMENTS
Debt securities-held to maturity $ 328,075 $ 328,075
Debt securities-available for sale 2,467,010 2,426,607
Equity securities-trading 99,097 113,643
Equity securities-available for sale 127,158 8,915
Equity securities-other 66,788 63,663
Mortgages 706,871 734,220
Notes receivable 198,582 207,658
Short-term investments 0 0
Policy loans 65,501 33,382
Investment in limited partnerships 55,400 57,300
------------------- -------------------
4,114,482 3,973,463
CASH AND CASH EQUIVALENTS 1,878,191 1,436,338
RECEIVABLES
Accrued investment income 58,059 41,984
Other 18,773 9,928
------------------- -------------------
76,832 51,912
PROPERTY AND EQUIPMENT-AT COST
Building and improvements 129,419 129,419
Furniture and equipment 119,198 116,570
Automobiles 22,015 22,015
------------------- -------------------
270,632 268,004
Less accumulated depreciation (123,398) (102,638)
------------------- -------------------
147,234 165,366
Land 56,000 56,000
------------------- -------------------
203,234 221,366
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less accumulated amortization 120,858 40,000
Deferred policy acquisition costs 96,289 57,527
Value of purchased insurance business 269,351 321,851
Deferred income taxes 37,241 37,241
Other 52,660 22,984
------------------- -------------------
576,399 479,603
------------------- -------------------
$ 6,849,138 $ 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
September 30, December 31,
2001 2000
----------------- -----------------
(Unaudited)
LIABILITIES
Policy reserves and policyholder funds $ 5,454,421 $ 4,708,295
Unpaid claims 20,663 175,951
Accounts payable 13,803 39,458
Accrued liabilities 7,373 15,424
Notes payable 59,970 248,254
Other liabilities 0 0
----------------- -----------------
5,556,230 5,187,382
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 26,888 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
Additional paid-in capital 3,340,584 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 46,953 (19,882)
Accumulated deficit (2,876,517) (2,706,090)
Less preferred stock subscriptions receivable -- (650,000)
----------------- -----------------
1,292,908 975,300
----------------- -----------------
$ 6,849,138 $ 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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
Insurance premiums $ 117,709 $ 63,841 $ 338,694 $ 146,146
Reinsurance premium ceded (18,087) (11,149) (36,807) (31,576)
----------- ----------- ----------- -----------
Net premium income 99,622 52,692 301,887 114,570
----------- ----------- ----------- -----------
Investment activity
Investment income 73,906 92,233 430,195 285,821
Net realized gains on sale of available for sale
securities -- 9,596 (6,830) 39,127
Net losses on trading securities (104,479) -- (178,341) --
Other 29,460 6,126 47,966 103,182
----------- ----------- ----------- -----------
98,509 160,647 594,877 542,700
Benefits, losses and expenses
Policy benefits 48,697 21,053 106,597 81,603
Change in policy reserves (3,973) 66,344 224,647 161,015
Interest expense 3,179 7,429 13,381 20,677
Taxes, licenses and fees 5,463 16,163 15,831 29,165
Depreciation and amortization 31,985 17,726 89,470 48,093
General, administrative and other operating expenses 67,209 105,875 290,378 363,040
----------- ----------- ----------- -----------
152,560 234,590 740,304 703,593
----------- ----------- ----------- -----------
Earnings (Loss) before income taxes (54,051) (73,943) (145,427) (160,893)
Income tax provision -- -- -- --
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ (54,051) $ (73,943) $ (145,427) $ (160,893)
Preferred Stock Dividend Requirement 12,500 12,500 37,500 37,500
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHARES $ (66,551) $ (86,443) $ (182,927) $ (198,393)
=========== =========== =========== ===========
Earnings (Loss) per common share -
Basic and diluted $ (0.03) $ (0.04) $ (0.08) $ (0.09)
=========== =========== =========== ===========
Weighted average outstanding common shares,
basic and diluted 2,492,283 2,248,605 2,334,390 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
Nine Months Ended September 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 421,200 421,200 4,212 -- -- -- --
Dividends on preferred stock (25,000) -- -- -- -- -- --
Comprehensive income
Net income (loss) (145,427) -- -- -- -- -- --
Other comprehensive inc
(loss)
Unrealized gain on
investments 66,835 -- -- -- -- -- --
-----------
Comprehensive inc. (loss) (78,592)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2001 $ 1,292,908 2,688,805 $ 26,888 5,000 $ 500,000 350,000 $ 350,000
=========== =========== =========== =========== =========== =========== ===========
Common Accumulated
Stock of Other
Additional Parent Held Comprehensive
Paid-in by Income Accumulated
Capital Subsidiary (Loss) Deficit
----------- ----------- ----------- -----------
Balance at January 1, 2001 $ 2,923,596 $ (95,000) $ (19,882) $(2,706,090)
Issuance of common stock 416,988 -- -- --
Dividends on preferred stock -- -- -- (25,000)
Comprehensive income
Net income (loss) -- -- -- (145,427)
Other comprehensive inc
(loss)
Unrealized gain on
investments -- -- 66,835 --
Comprehensive inc. (loss)
----------- ----------- ----------- -----------
Balance at September 30, 2001 $ 3,340,584 $ (95,000) $ 46,953 $(2,876,517)
=========== =========== =========== ===========
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)
Nine Months Ended
September 30,
--------------------------------------
2001 2000
----------------- -----------------
Increase (Decrease) in Cash and Cash Equivalents
Net cash provided by (used in) operating activities $ (205,528) $ (161,704)
Net cash provided by (used in) investing activities 204,782 1,325,670
Net cash provided by (used in) financing activities 442,599 (702,445)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 441,853 461,521
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 $ 1,878,191 $ 1,397,267
================= =================
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 and nine month periods
ended September 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