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, 1997
[ ] 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
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(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
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(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 after the distribution of
securities under a plan confirmed by court.
Yes [ ] 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]
<PAGE>
COLONIAL TRUST COMPANY
INDEX
Page
----
Part I. Financial Information:
Item 1: Financial Statements 3
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 10
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 13
Item 7: Exhibit 11 - Schedule of Computation 14
Of Earnings Per Share
2
<PAGE>
COLONIAL TRUST COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
September 30, 1997 and March 31, 1997
September 30, March 31,
1997 1997
---------- ---------
(Unaudited)
ASSETS
Cash and cash equivalents $ 119,543 132,426
Receivables 289,000 150,228
Note receivable 375,042 361,057
Property, furniture and equipment, net 726,650 739,456
Goodwill, net 159,505 165,590
Other assets 175,033 166,443
---------- ---------
$1,844,773 1,715,200
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 116,786 113,610
Income tax payable 47,194 25,617
Deferred income taxes 21,322 19,429
---------- ---------
Total liabilities 185,302 158,656
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 599,182 496,255
---------- ---------
Total stockholders' equity 1,659,471 1,556,544
---------- ---------
$1,844,773 1,715,200
========== =========
See accompanying notes to condensed financial statements.
3
<PAGE>
COLONIAL TRUST COMPANY
Condensed Statements of Operations (Unaudited)
Three-month periods ended Six-month periods ended
September 30, September 30,
1997 1996 1997 1996
-------- ------- --------- -------
Revenues from trust services:
Bond servicing income $419,053 318,969 784,522 591,477
IRA servicing fees 96,030 68,299 228,592 161,185
Trust fee income 74,036 38,852 133,243 72,078
Interest income 9,503 8,290 19,073 16,572
-------- ------- --------- -------
Total revenue 598,622 434,410 1,165,430 841,312
======== ======= ========= =======
General and administrative
expenses 485,084 358,054 992,425 724,434
-------- ------- --------- -------
Income before income taxes 113,538 76,356 173,005 116,878
-------- ------- --------- -------
Income taxes 45,993 31,306 70,077 47,336
Net income $ 67,545 45,050 102,928 69,542
======== ======= ========= =======
Net income per common share $ .009 .006 .013 .009
======== ======= ========= =======
See accompanying notes to condensed financial statements and Exhibit 11.
4
<PAGE>
COLONIAL TRUST COMPANY
Condensed Statements of Cash Flows (Unaudited)
Six-month periods
ended September 30,
1997 1996
--------- --------
Cash flows from operating activities:
Net income $ 102,928 69,542
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization 6,085 6,085
Depreciation 35,545 26,270
Increase in other receivables (138,772) (18,838)
(Increase) Decrease in other assets (8,590) 3,189
Increase (Decrease) in accounts payable,
accrued liabilities and income taxes 26,646 (8,542)
--------- --------
Net cash provided by operating activities 23,842 77,706
Cash flows from investing activities:
Purchase of property, furniture and equipment (22,739) (30,106)
Purchase of note receivable (13,986) (12,557)
Payment of Note Payable 0 (540,000)
Decrease in investment securities 0 464,883
--------- --------
Net cash used in investing activities (36,725) (117,780)
--------- --------
(Decrease) in cash and cash equivalents (12,883) (40,074)
Cash at beginning of period 132,426 217,638
--------- --------
Cash at end of period $ 119,543 177,564
========= ========
See accompanying notes to condensed financial statements.
5
<PAGE>
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
1. Significant Accounting Policies
In the opinion of Colonial Trust Company (the "Company"), the accompanying
unaudited condensed 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 1997 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 and is
regulated by the Arizona State Banking Department. 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 39 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.
6
<PAGE>
COLONIAL TRUST COMPANY
Notes to Condensed 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 now operates as the Company's "Personal Trust Division".
(b) Revenue Recognition
The Company is compensated for its services as trustee and paying
agent in one of three ways. The first fee structure allows the Company
to invest trust funds held for disbursement and retain the gains and
earnings therefrom. The second fee structure requires the issuing
institution to pay a percentage of the bond proceeds to the Company
for set-up and bond printing costs during the first year.
Additionally, an annual maintenance fee is required each year. The
third fee structure entitles the Company to interest earnings up to
2.5% of daily trust funds held in bond proceeds accounts in lieu of a
set-up fee. Annual maintenance fees and bond printing costs are
charged as a percentage of the related bond issue. The Company's
policy is to allow the non-profit issuer to choose between the three
fee structures. The Company believes that the third 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.
7
<PAGE>
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
Under the second fee structure, the Company charges a flat annual fee
based on the type of assets and services rendered. This fee varies
depending on the level of investment manage- ment the customer
desires. The Company charges a flat annual fee of $500 plus a per
asset fee for special assets held in the account for IRA accounts for
which it serves as custodian.
Computation of Net Income Per Common Share
Income per share included in the 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 and Investment Trust, Inc., its former
parent corporation. 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. The Company will not be
renewing this lease.
8
<PAGE>
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
4. Promissory Note
In connection with the acquisition of Camelback, 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 Bud 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 Company's continuation or termination of its
Bond Purchase Program; the Company's success in generating additional
business from the Bond Purchase Program, if continued, and the
Company's success in being repaid on the bonds it purchases or the
loans it makes under such Program; 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.
9
<PAGE>
Item 2. Management's 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 December 31,
1997. At September 30, 1997, the Company's total net capital was approximately
$1,659,471, of which $159,000 was considered liquid (as the Company interprets
the State Banking Department definition of liquid capital), compared to net
capital of $1,556,000 at March 31, 1997, of which none was considered liquid. As
of November 13, 1997, $234,000 is considered liquid (as the Company interprets
the State Banking Department definition of liquid capital). The Company is in
the process of clarifying its interpretation of the above State Banking
Department requirement. Additionally, the legislation requires the Company to
have liquid net capital of $333,332 by December 31, 1998 and liquid net capital
of $500,000 by December 31, 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 income
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.
On November 1, 1995, the Company purchased all the issued and outstanding
capital stock of Camelback Trust Company ("Camelback"). 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. During fiscal 1997, the excess of cost over fair value
(goodwill) of $190,118 was reduced by $7,288 to reflect the fair market value of
assets and liabilities. 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.
10
<PAGE>
The Company's cash and cash equivalents decreased from $132,426 on March
31, 1997 to $119,543 on September 30, 1997, while the note receivable increased
from $361,057 on March 31, 1997 to $375,042 on September 30, 1997. The decrease
in cash and cash equivalents was due to the results of operations and the
increase in the note receivable were primarily due to the reinvestment of
interest earned on the note receivable. The Company's property and equipment
increased from $965,576 on March 31, 1997 to $988,315 on September 30, 1997. 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,
1997
The Company reported increases in net income for both the three-month and
six-month periods ended September 30, 1997 compared to comparable prior periods.
The Company had net income of $67,545, or $.009 per share, for the three-month
period ended September 30, 1997, compared to net income of $45,050, or $.006 per
share, for the three-month period ended September 30, 1996. The Company had net
income of $102,928, or $.013 per share, for the six-month period ended September
30, 1997, compared to net income of $69,542, or $.009 per share, for the
six-month period ended September 30, 1996. The Company had total revenue of
$598,622 for the three-month period ended September 30, 1997, compared to total
revenue of $434,410 for the three-month period ended September 30, 1996. The
Company had total revenue of $1,165,430 for the six-month period ended September
30, 1997, compared to total revenue of $814,312 for the six-month period ended
September 30, 1996.
The Company's bond servicing income increased to $419,053 for the
three-month period ended September 30, 1997, compared to $318,969 for the
three-month period ended September 30, 1996. The Company's bond servicing income
increased to $784,522 for the six-month period ended September 30, 1997,
compared to $591,477 for the six-month period ended September 30, 1996. 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,
1997, the Company served as trustee for the benefit of bondholders on 508 bond
offerings totaling approximately $364,000,000 in original principal amount; as
of September 30, 1996, the Company was serving as trustee for the benefit of
bondholders on 367 bond offerings totaling approximately $283,000,000 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 $96,030 for the three-month period
ended September 30, 1997, compared to $68,299 for the three-month period ended
September 30, 1996. Income from IRA Accounts increased to $228,592 for the
11
<PAGE>
six-month period ended September 30, 1997, compared to $161,185 for the
six-month period ended September 30, 1996. These increases were due primarily to
an increase in the number of IRA accounts serviced by the Company. As of
September 30, 1997, the Company served as trustee for approximately 6,900
self-directed Individual Retirement Accounts with total assets of approximately
$134,000,000; 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.
Trust fee income for the Personal Trust Division totaled $74,036 for the
three-month period ended September 30, 1997, compared to $38,852 for the
three-month period ended September 30, 1996. Trust fee income for the Personal
Trust Division totaled $133,243 for the six-month period ended September 30,
1997, compared to $72,078 for the six-month period ended September 30, 1996.
These increases were due to an increase in the number of accounts for which the
Company serves as trustee or agent.
Interest income increased to $9,503 for the three-month period ended
September 30, 1997, compared to $8,290 for the three-month period ended
September 30, 1996. Interest income increased to $19,073 for the six-month
period ended September 30, 1997 compared to $16,572 for the six-month period
ended September 30, 1996. The increases were primarily attributable to changes
in interest rates.
The Company's general and administrative expenses increased to $485,084 for
the three-month period ended September 30, 1997, compared to $358,054 for the
three-month period ended September 30, 1996. The Company's general and
administrative expenses increased to $992,425 for the six-month period ended
September 30, 1997, compared to $724,434 for the six-month period ended
September 30, 1996. The increases were due primarily to the addition of several
staff members, as well as additional expenses involved in administering the
Company's expanding bond servicing business and an increase in depreciation
expense related to the recent remodeling of the Company's corporate office. The
Company also incurred an expense of approximately $54,500.00 in connection with
the termination in June 1997 of its proposed private placement of Common Stock.
Such expenses were for legal, accounting, and investment banking fees incurred
(and previously accrued by the Company) in connection with such private
placement. The Company sold no securities in the private placement.
The Company's income tax rate was 40.5% for both of the three-month periods
ended September 30, 1997 and September 30, 1996. The Company's income tax rate
was 40.5% for the both of the six-month periods ended September 30, 1997 and
September 30, 1996.
12
<PAGE>
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:
11 - Schedule of Computation of Earnings Per Share
27 - Financial Data Schedule
(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, 1997 BY: /s/ John K. Johnson
------------------ -------------------------
John K. Johnson
Its: President
DATE: November 13, 1997 BY: Cecil E. Glovier
------------------ -------------------------
Cecil E. Glovier
Its: Chief Financial Officer
13
Item 7: Exhibit 11 - Schedule of Computation of Earnings Per Share
Formula: Net Income/Weighted Average Shares Outstanding = Net Income per Common
Share
Three-month periods ended (without stock options):
September 30, 1997 $67,545 / 7,777,401 shares = $.009 Net Income per Common
Share
September 30, 1996 $45,050 / 7,777,401 shares = $.006 Net Income per Common
Share
Six-month periods ended (without stock options):
September 30, 1997 $102,928 / 7,777,401 shares = $.013 Net Income per Common
Share
September 30, 1996 $69,542 / 7,777,401 shares = $.009 Net Income per Common
Share
Calculation of Earnings Per Share for the Common Stock Equivalent using the
Treasury Stock Method:
Market price per share at Sept. 30, 1997 = $.30
Option price per share = $.25
Weighted average of shares outstanding using the Treasury Stock Method of
calculating Earnings Per Share = 7,937,773 as of September 30, 1997
Three-month periods ended:
September 30, 1997 $67,545 / 7,937,773 shares = $.009 Net Income per Common
Share
September 30, 1996 N/A
Six-month periods ended:
September 30, 1997 $102,928 / 7,937,773 shares = $.013 Net Income per Common
Share
September 30, 1996 N/A
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 119,543
<SECURITIES> 0
<RECEIVABLES> 664,042
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 958,618
<PP&E> 988,315
<DEPRECIATION> (261,665)
<TOTAL-ASSETS> 1,844,773
<CURRENT-LIABILITIES> 185,302
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0
0
<COMMON> 554,942
<OTHER-SE> 1,104,529
<TOTAL-LIABILITY-AND-EQUITY> 1,844,773
<SALES> 1,165,430
<TOTAL-REVENUES> 1,165,430
<CGS> 0
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<OTHER-EXPENSES> 992,425
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