<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
---------- ----------
Commission File Number 000-18887
COLONIAL TRUST COMPANY
(Exact name of registrant as specified in its charter)
Arizona 75-2294862
(State of Incorporation) (IRS Employer Identification
Number)
5336 N. 19th Avenue
Phoenix, Arizona 85015
(Address of principal executive offices)
602-242-5507
(Registrant's telephone number)
NONE
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act
<PAGE> 2
after the distribution of securities under a plan confirmed by court.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date:
7,777,401
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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COLONIAL TRUST COMPANY
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information:
Item 1: Consolidated Financial Statements 4
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of
Operations 5
Condensed Consolidated Statements of
Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management Discussion and Analysis or
Plan of Operation 11
Part II. Other Information
Item 1: Legal Proceedings 13
Item 2: Changes in Securities 13
Item 3: Default Upon Senior Securities 13
Item 4: Submission of Matters to a Vote of
Security Holders 13
Item 5: Other Information 13
Item 6: Exhibits and Reports on Form 8-K 13
SIGNATURES
</TABLE>
<PAGE> 4
COLONIAL TRUST COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1996 and March 31, 1996
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
ASSETS (Unaudited)
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 177,564 217,638
Investment securities 0 464,883
Receivables 129,083 110,245
Note receivable 348,101 335,544
Property, furniture and equipment, net 636,112 632,276
Goodwill, net 171,315 185,047
Other assets 107,662 104,751
---------- ----------
$1,569,837 2,050,384
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 71,031 59,808
Note payable 0 540,000
Income tax payable 16,068 35,833
Deferred income taxes 21,322 21,322
---------- ----------
108,421 656,963
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized,
7,777,401 issued and outstanding 554,942 554,942
Additional paid-in capital 505,347 505,347
Retained earnings 401,127 333,132
---------- ----------
Total stockholders' equity 1,461,416 1,393,421
---------- ----------
$1,569,837 2,050,384
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
COLONIAL TRUST COMPANY
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three-month periods ended Six-month periods ended
September 30, September 30,
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues from trust services:
Bond servicing income $318,969 219,766 591,477 409,924
IRA servicing fees 68,299 37,350 161,185 90,321
Trust fee income 38,852 0 72,078 0
Interest income 8,290 8,117 16,572 16,614
-------- ------- ------- -------
Total revenue 434,410 265,233 841,312 516,859
======== ======= ======= =======
General and administrative
expenses 358,054 219,585 724,434 425,441
-------- ------- ------- -------
Income before income taxes 76,356 45,648 116,878 91,418
-------- ------- ------- -------
Income taxes 31,306 18,716 47,336 37,024
Net income $ 45,050 26,932 69,542 54,394
======== ======= ======= =======
Net income per common share $ .006 .004 .009 .008
======== ======= ======= =======
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
COLONIAL TRUST COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six-month periods
ended September 30,
1996 1995
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 69,542 54,394
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization 6,085 42
Depreciation 26,270 21,577
(Increase) Decrease in other
receivables (18,838) 0
(Increase) Decrease in other assets 3,189 (7,053)
Decrease in accounts payable, accrued
liabilities and income taxes (8,542) (16,242)
--------- ---------
Net cash provided by (used in)
operating activities 77,706 (52,718)
Cash flows from investing activities:
Purchase of property, furniture and equipment (30,106) (43,410)
Purchase of note receivable (12,557) (12,698)
Payment of Note Payable (540,000) 0
Decrease in investment securities 464,883 0
--------- ---------
Net cash used in investing activities (117,780) (56,108)
--------- ---------
Decrease in cash and cash equivalents (40,074) (3,390)
Cash at beginning of period 217,638 132,349
--------- ---------
Cash at end of period $ 177,564 128,959
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
COLONIAL TRUST COMPANY
Notes to Condensed Consolidated Financial Statements
1. Significant Accounting Policies
In the opinion of Colonial Trust Company (the "Company"), the
accompanying unaudited condensed consolidated financial statements
contain all adjustments necessary to present fairly the financial
position, the results of operations and cash flows for the periods
presented. The accompanying statements do not include all disclosures
considered necessary for a fair presentation in conformity with
generally accepted accounting principles. Therefore, it is recommended
that these accompanying statements be read in conjunction with the
financial statements appearing in the Company's 1996 annual report on
Form 10-KSB.
(a) Nature of Business
The Company was incorporated on August 15, 1989 in the State of
Arizona for the purpose of engaging in the business of acting as
a fiduciary. The Company is domiciled in the State of Arizona, is
regulated by the Arizona State Banking Department, and its Common
Stock is registered under the Securities Exchange Act of 1934.
The Company serves as trustee under various bond indentures for
issuers of bonds in 24 states. The issuers are primarily churches
and other non-profit organizations. As trustee, the Company
receives, holds, invests, and disburses the bond proceeds as
directed by the applicable trust indenture and receives weekly or
monthly sinking fund payments from the issuer of the bonds, and,
as paying agent, pays the semi-annual principal and interest
payments to the bondholders.
The Company also serves as trustee of self-directed individual
retirement accounts for certain bondholders or employees of
religious organizations.
On November 1, 1995, the Company purchased all of the issued and
outstanding capital stock of Camelback Trust Company (Camelback).
Camelback serves as trustee or agent, providing investment
management, administration, and custodial services for customers
with various securities held in trust or for investment agency
accounts. The accompanying consolidated financial statements
include the results of Camelback for the six-month period ended
September 30, 1996.
7
<PAGE> 8
COLONIAL TRUST COMPANY
Notes to Condensed Consolidated Financial Statements
Effective on August 1, 1996, Camelback was merged with and into
the Company, the Company continued as the surviving corporation,
and the separate existence of Camelback terminated effective as
of such date. Camelback is now called the Company's "Personal
Trust Division".
(b) Revenue Recognition
The Company is compensated for its services as trustee and
paying agent in one of two ways. Under the first fee
structure offered by the Company, the Company is paid a one-time
set-up fee equal to .1% of the original amount of the bonds
issued, and also is paid an amount equal to 2.5% of the daily
undisbursed balance of the bonds. This fee is paid monthly. The
remainder of the Company's fee is paid annually and is equal to a
percentage (typically .2%-.3%) of the original amount of bonds
issued. Under the second fee structure, the Company charges the
non-profit organization a fixed fee for the various services to
be provided by the Company. The Company's policy is to allow the
non-profit organization to choose between the first and second
fee structures. The Company believes that the first fee structure
is currently utilized by a majority of the Company's competitors.
The Company also receives fees for services provided as custodian
for self-directed individual retirement accounts. For its
services as trustee, the Company receives an annual base fee of
$40 and a transaction fee of $5 per transaction for each
transaction in excess of 12 per year. The Company also retains,
as a portion of its fee, earnings up to 2% of the daily
uninvested balance in each IRA account.
The Company's Personal Trust Division generates revenues based on
two fee structures. The first structure represents a percentage
of the fiduciary assets which are held as trustee or agent. Fees
are assessed on a quarterly basis to individual accounts
according to the fair market value of the supporting fiduciary
assets in such account at the end of each quarter. Under the
second fee structure, Colonial charges a flat annual fee based on
the type of assets and services rendered. This fee varies
depending on the level of investment management the customer
desires. Colonial charges a flat annual fee of $500 and a fee of
$25 per special asset held in the account for IRA accounts for
which it serves as custodian.
8
<PAGE> 9
COLONIAL TRUST COMPANY
Notes to Condensed Consolidated Financial Statements
The Personal Trust Division's results of operations are included
in the condensed consolidated financial statements for the
six-month period ended September 30, 1996; however, since the
acquisition of Camelback did not occur until November
1, 1995, results of operations for the six-month period ended
September 30, 1995 do not include Camelback's results of
operations for such period.
(c) Computation of Net Income Per Common Share
Income per share included in the consolidated financial
statements is based on 7,777,401 shares of Common Stock
outstanding. There were no share equivalents or other potentially
dilutive securities outstanding during any of the years
presented.
2. Note Receivable
On December 1, 1990, the Company entered into a Master Note and Letter
Agreement with Church Loans. The Master Note, in the maximum amount of
$1,000,000, is due on demand, bears interest payable monthly at 1% less
than the prime rate and is unsecured. Amounts advanced from time to time
may be prepaid and reborrowed.
3. Lease Commitments
The Company leases certain office equipment under various nonterminable
lease arrangements. The Company is also party to an office lease for
commercial office space formerly occupied by the Company. On March 15,
1995, the Company assigned its rights and obligations under the office
lease to an unrelated third party. The Company is liable for rent and other
obligations under the lease in the event the assignee defaults under the
office lease. The office lease terminated on September 30, 1996.
The Company is party to an office lease for commercial office space
formerly occupied by Camelback as its executive office. This space
currently is utilized by the Personal Trust Division. This office lease
terminates on February 14, 1998.
9
<PAGE> 10
COLONIAL TRUST COMPANY
Notes to Condensed Consolidated Financial Statements
4. Promissory Note
In connection with the acquisition of Camelback Trust Company, the Company
issued a Promissory Note to the shareholders of Camelback in the amount of
$540,000. The Company held investments available for sale of approximately
$540,000 as security for the Promissory Note. The Promissory Note was due
on August 1, 1996, including all interest from November 1, 1995 through
maturity. On July 31, 1996, this Promissory Note was paid in full by
transferring the investment securities held as collateral to the holder of
the Promissory Note, including all interest earned from November 1, 1995
through July 31, 1996.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995:
This Form 10-QSB may contain one or more forward-looking statements within
the meaning of Section 21 E of the Securities Exchange Act of 1934, as
amended, and is subject to the safe harbors created thereby. These
forward-looking statements involve risks and uncertainties, including, but
not limited to: the Company's continued involvement in each of its current
businesses; the continued employment of key management, including John
Johnson, the Company's Chief Executive Officer, Marv Hoeflinger, the
Company's Vice President of Business Development, Bud Olson, the Company's
Vice President of Business Development - Personal Trust business, and
Christopher J. Olson, the Company's Vice President and senior officer
responsible for the Company's Personal Trust Business; the success of
Messrs. Johnson, Hoeflinger and Olson in their business development efforts
on behalf of the Company; the Company's ability to raise additional equity
capital in fiscal 1997 to support the expansion of the Company's existing
businesses and the potential development of new lines of business; the
continuation of the Company's investment advisory agreement with Hackett
Investment Advisors ("HIA") pursuant to which HIA provides investment
advisory services for substantially all of the trust and investment agency
accounts of the Company, and the success of HIA in managing such accounts;
increased competition for the Company's services; competitive pressures on
prices for the Company's services; increased staffing or office needs not
currently anticipated; new rules or regulations not currently anticipated
which adversely affect the Company; and an increase in interest rates or
other economic factors having an adverse impact on the Company.
10
<PAGE> 11
Item 2. Management Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
Under legislation passed by the State of Arizona effective on July 20,
1996, the Company is required to maintain net capital of at least $500,000, of
which $166,666 must be "liquid" (as defined in the legislation) by July 20,
1997. At September 30, 1996, the Company's total net capital was approximately
$1,467,802, of which none was considered liquid, compared to net capital of
$1,400,000 at March 31, 1996, of which $385,000 was considered liquid.
Additionally, the legislation requires the Company to have liquid net capital of
$333,332 by July 20, 1998 and liquid net capital of $500,000 by July 20, 1999.
At this time, the Company has no other sources of capital or liquidity available
to the Company, other than interest income earned and fees received by the
Company. Management believes that net earnings from future operations, together
with existing capital resources of the Company, will be sufficient to meet the
capital needs of the Company and the liquidity requirements imposed by the
recently-passed legislation for the foreseeable future, although there may be no
assurance in this regard. Notwithstanding the foregoing, the Company intends to
attempt to raise approximately $1 million in additional equity capital during
fiscal 1997. Such funds would be used to support expansion of the Company's
existing businesses, to develop additional lines of business, and to satisfy the
liquidity requirements imposed by the State of Arizona.
On November 1, 1995, the Company purchased all the issued and
outstanding capital stock of Camelback Trust Company ("Camelback"). Camelback
serves as trustee or agent, providing investment management, administration, and
custodial services for customers with various securities held in trust or
investment agency accounts.
The total consideration paid by Colonial for the net assets of
Camelback was $197,046. This amount included $27,646 cash (including $12,046 for
Camelback's furniture and equipment) and 769,999 shares of unregistered common
stock of Colonial valued at $169,400 ($.22 per share). The carrying value of
Camelback's net assets approximated their fair market value at the date of
acquisition, resulting in goodwill of $190,118. In connection with the Company's
issuance of a $540,000 Promissory Note payable to the former shareholders of
Camelback, approximately $540,000 of the Company's investments available for
sale were held as security for certain Secured Debentures payable by Camelback's
previous shareholder, Bootstrap Capital Corporation, Inc., to its shareholders.
On July 31, 1996, this Promissory Note was paid in full by transferring the
investment securities held as collateral to the holder of the Promissory Note,
including all interest earned from November 1, 1995 through July 31, 1996.
Effective, August 1, 1996, Camelback was merged with and into the Company, the
Company continued as the surviving corporation, and Camelback's separate
existence terminated effective as of such date.
11
<PAGE> 12
The Company's cash and cash equivalents decreased from $217,638 on
March 31, 1996 to $177,564 on September 30, 1996, while the note receivable
increased from $335,544 on March 31, 1996 to $348,101 on September 30, 1996. The
decrease in cash and cash equivalents and the increase in the note receivable
were primarily due to the reinvestment of cash in the note receivable. The
Company's property and equipment increased from $632,276 on March 31, 1996 to
$636,112 on September 30, 1996. The increase was primarily due to the purchase
of additional furniture, equipment and computer software.
Results of Operations - Three-month and Six-month Periods Ended September 30,
1996
The Company reported increases in net income for both the three-month
and six-month periods ended September 30, 1996 compared to comparable prior
periods. The Company had net income of $45,050, or $.006 per share, for the
three-month period ended September 30, 1996, compared to net income of $26,932,
or $.004 per share, for the three-month period ended September 30, 1995. The
Company had net income of $69,542, or $.009 per share, for the six-month period
ended September 30, 1996, compared to net income of $54,394, or $.008 per share,
for the six-month period ended September 30, 1995. The Company had total revenue
of $434,410 for the three-month period ended September 30, 1996, compared to
total revenue of $265,233 for the six-month period ended September 30, 1995. The
Company had total revenue of $841,312 for the six-month period ended September
30, 1996, compared to total revenue of $516,859 for the six-month period ended
September 30, 1995.
The Company's bond servicing income increased to $318,969 for the
three-month period ended September 30, 1996, compared to $219,766 for the
three-month period ended September 30, 1995. The Company's bond servicing income
increased to $591,477 for the six-month period ended September 30, 1996,
compared to $409,924 for the six-month period ended September 30, 1995. The
increase was primarily attributable to the increase in the number of bond issues
for which the Company serves as Trustee and Paying Agent. As of September 30,
1996, the Company served as trustee for the benefit of bondholders on 367 bond
offerings totaling approximately $283,000,000 in original principal amount; as
of September 30, 1995, the Company was serving as trustee for the benefit of
bondholders on 290 bond offerings totaling approximately $211,277,875 in
original principal amount. The increase in the number of bond offerings for
which the Company serves as Trustee and Paying Agent reflects increased
marketing and business development efforts of the Company, including, but not
limited to, the efforts of Marv Hoeflinger, the Company's Vice President of
Business Development, who joined the Company in February 1996.
Income from IRA Accounts increased to $68,299 for the three-month period
ended September 30, 1996, compared to $37,350 for the three-month period ended
September 30, 1995. Income from IRA Accounts increased to $161,185 for the
six-month period ended September 30, 1996, compared to
12
<PAGE> 13
$90,321 for the six-month period ended September 30, 1995. This increase was due
primarily to an increase in the number of IRA accounts serviced by the Company.
As of September 30, 1996, the Company served as trustee for 5,346 self-directed
Individual Retirement Accounts with total assets of approximately $101,500,000;
as of September 30, 1995, the Company served as trustee for 3,997 self-directed
Individual Retirement Accounts with total assets of approximately $62,000,000.
Fee income totaled $38,852 for the three-month period ended September
30,1996 and $72,078 for the six-month period ended September 30, 1996. This fee
income represents the Personal Trust Division's gross income from managed
accounts where Colonial acts as Trustee.
Interest income increased to $8,290 for the three-month period ended
September 30, 1996, compared to $8,117 for the three-month period ended
September 30, 1995. Interest income decreased to $16,572 for the six-month
period ended September 30, 1996, compared to $16,614 for the six-month period
ended September 30, 1995. The fluctuations were primarily attributable to
changes in interest rates.
The Company's general and administrative expenses increased to
$358,054 for the three-month period ended September 30, 1996, compared to
$219,585 for the three-month period ended September 30, 1995. The Company's
general and administrative expenses increased to $724,434 for the six-month
period ended September 30, 1996, compared to $425,441 for the six-month period
ended September 30, 1995. The increase was due primarily to the addition of Mr.
Hoeflinger, two staff members in the Company's legal department, and one
administrative staff member, as well as additional expenses involved in
administering the Company's increased bond servicing business.
The Company's income tax rate was 41% for both of the three-month
periods ended September 30, 1996 and September 30, 1995. The Company's income
tax rate was 40.5% for the both of the six-month periods ended September 30,
1996 and September 30, 1995.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities
None.
13
<PAGE> 14
Item 3: Default Upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLONIAL TRUST COMPANY
DATE: November 13, 1996 BY:John K. Johnson
---------------------- ------------------------
John K. Johnson
Its: President
DATE: November 13, 1996 BY:Cecil E. Glovier
---------------------- ------------------------
Cecil E. Glovier
Its: Chief Financial
Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 177,564
<SECURITIES> 0
<RECEIVABLES> 477,184
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 762,410
<PP&E> 830,197
<DEPRECIATION> 194,085
<TOTAL-ASSETS> 1,569,837
<CURRENT-LIABILITIES> 108,421
<BONDS> 0
0
0
<COMMON> 554,942
<OTHER-SE> 906,474
<TOTAL-LIABILITY-AND-EQUITY> 1,569,837
<SALES> 841,312
<TOTAL-REVENUES> 841,312
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 724,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 116,878
<INCOME-TAX> 47,336
<INCOME-CONTINUING> 69,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,542
<EPS-PRIMARY> .009
<EPS-DILUTED> .009
</TABLE>
