<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 June 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
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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>
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COLONIAL TRUST COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 and March 31, 1996
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
ASSETS (Unaudited)
------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 171,264 217,638
Investment securities 462,758 464,883
Receivables 136,735 110,245
Note receivable 341,731 335,544
Property, furniture and equipment, net 637,894 632,276
Goodwill, net 182,006 185,047
Other assets 117,728 104,751
---------- ----------
$2,050,116 2,050,384
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 64,389 59,808
Note payable 540,000 540,000
Income tax payable 0 35,833
Deferred income taxes 21,322 21,322
---------- ----------
625,711 656,963
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 364,116 333,132
---------- ----------
Total stockholders' equity 1,424,405 1,393,421
---------- ----------
$2,050,116 2,050,384
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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COLONIAL TRUST COMPANY
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three-month periods ended
June 30,
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Bond servicing income $ 272,283 190,159
IRA servicing fees 90,487 52,971
Trustee fees 35,625 0
Interest income 8,282 8,496
---------- ----------
Total revenue 406,677 251,626
========== ==========
General and administrative expenses 351,269 205,857
---------- ----------
Income before income tax 55,408 45,769
---------- ----------
Income taxes 22,163 18,308
---------- ----------
Net income $ 33,245 27,461
========== ==========
Net income per common share .004 .004
========== ==========
Weighted average common shares
outstanding 7,777,401 7,007,402
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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COLONIAL TRUST COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three-month periods
ended June 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,245 27,461
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization 9,959 42
Depreciation 12,976 11,178
(Increase) Decrease in other
receivables (26,490) 7,401
Increase in other assets (22,156) 0
Decrease in accounts payable, accrued
liabilities and income taxes (31,252) (28,900)
--------- ---------
Net cash provided by (used in)
operating activities (56,963) (10,279)
Cash flows from investing activities:
Purchase of property, furniture and equipment (18,594) (39,412)
Purchase of note receivable (6,187) (6,317)
Decrease in investment securities 2,125 0
--------- ---------
Net cash used in investing activities (22,656) (45,729)
--------- ---------
Decrease in cash and cash equivalents (46,374) (28,547)
Cash at beginning of period 217,638 132,349
--------- ---------
Cash at end of period $ 171,264 103,802
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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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 in turn, 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 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 accompanying consolidated
financial statements include the results of Camelback for the
three-month period ended June 30, 1996.
7
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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.
(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.
Camelback generates revenues based on two fee structures. The
first structure represents a percentage of the fiduciary
assets which Camelback holds 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, Camelback 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. Camelback 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
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COLONIAL TRUST COMPANY
Notes to Condensed Consolidated Financial Statements
Camelback's results of operations are included in the
condensed consolidated financial statements for the
three-month period ended June 30, 1996; however, since the
acquisition of Camelback did not occur until November 1, 1995,
results of operations for the three-month period ended June
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 terminates on September 30,
1996.
Camelback is party to an office lease for commercial office space
formerly occupied by Camelback as its executive office. This space
currently is utilized by Camelback as a sales office. The office lease
terminates on February 14, 1998.
9
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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 in the amount of $540,000. The Company
holds investments available for sale of approximately $540,000 which
are held 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" by July 20, 1997. At June 30, 1996,
the Company's total net capital was approximately $1,432,000, of which
approximately $347,000 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 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 are 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 $171,264 on June 30, 1996, while the note receivable increased
from $335,544 on March 31, 1996 to $341,731 on June 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 $637,894 on June 30,
1996. The increase was primarily due to the purchase of additional furniture,
equipment and computer software.
Results of Operations - Three-Month Period Ended June 30, 1996
The Company reported an increase in net income for the
three-month period ended June 30, 1996 compared to the comparable prior period.
The Company had net income of $33,245, or $.004 per share, for the three-month
period ended June 30, 1996, compared to net income of $27,461, or $.004 per
share, for the three-month period ended June 30, 1995. The Company had total
revenue of $406,677 for the three-month period ended June 30, 1996, compared to
total revenue of $251,626 for the three-month period ended June 30, 1995.
The Company's bond servicing income increased to $272,283 for
the three-month period ended June 30, 1996, compared to $190,159 for the
three-month period ended June 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 June 30, 1996, the Company served as trustee for
the benefit of bondholders on 342 bond offerings totaling approximately
$262,000,000 in original principal amount; as of June 30, 1995, the Company was
serving as trustee for the benefit of bondholders on 278 bond offerings totaling
approximately $203,000,000 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 $90,487 for the three-month
period ended June 30, 1996, compared to $52,971 for the three-month period ended
June 30, 1995. This increase was due primarily to an increase in the number of
IRA accounts serviced by the Company. As of June 30, 1996, the Company served as
trustee for 4,918 self-directed Individual Retirement Accounts with total assets
of approximately $79,364,265; as of June 30, 1995, the Company served as trustee
for 3,491 self-directed Individual Retirement Accounts with total assets of
approximately $44,662,592.
Fee income totaled $35,625 for the three-month period ended
June 30,1996. This fee income represents Camelback's gross income from managed
accounts where Camelback acts as Trustee.
12
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Interest income decreased to $8,282 for the three-month period
ended June 30, 1996, compared to $8,496 for the three-month period ended June
30, 1995. The decrease was primarily attributable to the overall decline in
interest rates.
The Company's general and administrative expenses increased to
$351,269 for the three-month period ended June 30, 1996, compared to $205,857
for the three-month period ended June 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 40% for the three-month
period ended June 30, 1996, and 40% for the three-month period ended June 30,
1995.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities
None.
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.
13
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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: August 13, 1996 BY:John K. Johnson
---------------- ---------------
John K. Johnson
Its: President
DATE: August 13, 1996 BY:Cecil E. Glovier
---------------- ----------------
Cecil E. Glovier
Its: Chief Financial
Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 171,264
<SECURITIES> 462,758
<RECEIVABLES> 478,466
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,191,237
<PP&E> 818,684
<DEPRECIATION> 180,790
<TOTAL-ASSETS> 2,050,116
<CURRENT-LIABILITIES> 625,711
<BONDS> 0
0
0
<COMMON> 554,942
<OTHER-SE> 869,463
<TOTAL-LIABILITY-AND-EQUITY> 2,050,116
<SALES> 406,677
<TOTAL-REVENUES> 406,677
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 351,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 55,408
<INCOME-TAX> 22,163
<INCOME-CONTINUING> 33,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,245
<EPS-PRIMARY> .004
<EPS-DILUTED> .004
</TABLE>
