FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______to_______.
Commission File NO. 000-18887
COLONIAL TRUST COMPANY
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(Name of small business issuer in its charter)
ARIZONA 75-2294862
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(State of Incorporation) (IRS Employer Identification Number)
5336 N. 19th Avenue
Phoenix, Arizona 85015
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(Address of principal executive offices)
602-242-5507
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value
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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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference of Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuers' revenues for its most recent fiscal year: $1,786,245.
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant was $1,879,206 as of June 1, 1997
As of June 1, 1997, 7,777,401 shares of the Registrant's Common Stock were
outstanding.
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TABLE OF CONTENTS
Page
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PART I
Item 1: Description of Business . . . . . . . . . . . . 3
Item 2: Description of Properties . . . . . . . . . . . 10
Item 3: Legal Proceedings . . . . . . . . . . . . . . . 10
Item 4: Submission of Matters to a Vote of
Security-Holders . . . . . . . . . . . . . . . . 10
PART II
Item 5: Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . 11
Item 6: Management's Discussion and Analysis
or Plan of Financial Condition and Results
Of Operations . . . . . . . . . . . . . . . . . 11
Item 7: Financial Statements . . . . . . . . . . . . . . 16
Item 8: Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . 33
PART III
Item 9: Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . 33
Item 10: Executive Compensation . . . . . . . . . . . . . 35
Item 11: Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . 37
Item 12: Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . 39
Item 13: Exhibits and Reports on Form 8-K . . . . . . . . 39
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Colonial Trust Company (the "Company") was incorporated under the laws
of the State of Arizona on August 15, 1989. The business operations of the
Company commenced on September 11, 1989. From the time of its organization
through September 30, 1990, the Company was a wholly-owned subsidiary of Church
Loans and Investments Trust ("Church Loans"), a real estate investment trust
located in Amarillo, Texas. On October 1, 1990, all of the capital stock of the
Company was distributed to the stockholders of Church Loans on the basis of one
share of common stock of the Company for each share of Church Loans stock owned
on such date.
On September 11, 1989, the Company began providing trust services to
the public. These services included serving as trustee on inter vivos and
testamentary trusts, serving as the legal representative of estates of decedents
and wards, serving as the custodian under individual retirement accounts ("IRA
Accounts"), and serving as trustee for bond offerings of churches and other
non-profit organizations. The Company is presently primarily engaged in the
business of serving as trustee and paying agent on bond programs of churches and
other non-profit organizations, and to a lesser extent is engaged in serving as
trustee for IRA Accounts. Through its Personal Trust Division, the Company
provides traditional investment management, administration and custodial
services for customers with trust assets. See "Trust Services, Personal Trust
Division."
BOND OFFERING SERVICES
The Company's primary business historically has been serving as trustee
and paying agent for bond offerings of churches and other non-profit
organizations. According to the National Association of Securities Dealers, the
total principal amount of bonds sold in the U.S. by non-profit organizations in
1996 and 1995 was approximately $352 million and $350 million, respectively. The
overwhelming majority of these bonds are sold by broker-dealers in offerings
which are exempt from registration under federal and state securities laws.
In its capacity as trustee for bond offerings of non-profit
organizations, the Company receives proceeds from the sale of the bonds and
distributes those proceeds according to the purposes of the bond offering. The
Company invests such proceeds in U.S. Treasury Obligation Money Market Mutual
Funds according to the terms of the Company's investment policy and the
applicable trust indenture. The Company also receives periodic sinking fund
payments (payments of interest on the bonds by the non-profit organizations,
typically made on a weekly basis) on their respective due dates. In its capacity
as paying agent, the Company distributes the sinking funds payments to
bondholders pursuant to a trust indenture between the Company and the non-profit
organization. If the non-profit organization defaults under the terms of the
trust indenture, the Company forecloses on the property securing the payment of
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the bonds (typically real estate and related improvements owned by the
non-profit organization, such as a church), attempts to sell the property, and
thereafter distributes the proceeds (if any) received from the foreclosure sale
to bondholders.
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.
As of March 31, 1997, the Company had served as trustee and paying
agent on 360 bond offerings totaling approximately $332 million in original
principal amount. The foregoing includes a total of 75 bond offerings in
original principal amount of approximately $75 million originated in the fiscal
year ended March 31, 1997. The Company's revenues from these activities
represented approximately 69% of the Company's aggregate revenues for the year
ended March 31, 1997. See "Item 6-Management's Discussion and Analysis of
Financial Condition and Results of Operations-Results of Operations for the
Years Ended March 31, 1997 and 1996."
As of March 31, 1997, all bond programs for which the Company was
serving as trustee and paying agent had been originated by thirteen
broker/dealers, and four of those broker/dealers had originated bonds
representing approximately 85% of the aggregate principal amount of all bonds
for which the Company was serving as trustee and paying agent. The Company's
ability to generate bond servicing fees is dependent upon the ability of
broker/dealers to originate bond offerings for non-profit organizations and the
Company's ability to maintain or develop a relationship with broker/dealers who
are successful in originating such bond offerings.
The Company intends to attempt to develop relationships with additional
broker/dealers who are active in the non-profit bond financing market. To that
end, in February 1996 the Company entered into an employment agreement with Marv
Hoeflinger pursuant to which Mr. Hoeflinger currently serves as the Company's
Vice President of Marketing. Until joining the Company, Mr. Hoeflinger was
employed as Senior Vice President with Reliance Trust Company, one of the
Company's primary competitors in the non-profit bond servicing business. Mr.
Hoeflinger is primarily responsible for attempting to procure additional
business from the broker/dealers with whom the Company currently has a
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relationship, and for attempting to develop relationships with and procure
business from broker/dealers with whom the Company does not currently have a
relationship.
IRA ACCOUNT SERVICES
The Company also serves as trustee for IRA Accounts. As trustee, the
Company receives all contributions to these accounts, invests the contributions
as directed by the account participant and distributes the funds of the accounts
pursuant to the terms of each individual account. 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.
At March 31, 1997, the Company was serving as trustee for approximately
6,200 IRA Accounts with an aggregate value of approximately $124 million,
including 104 IRA Accounts with an aggregate value of approximately $26 million
serviced by the Company's Personal Trust Division. Revenue from the Company's
activities in this area represented approximately 20% of the Company's aggregate
revenues for the year ended March 31, 1997. See "Item 6-Management's Discussion
and Analysis of Financial Condition and Results of Operations-Results of
Operations for the Years Ended March 31, 1997 and 1996."
The majority of the IRA Accounts serviced by the Company have been
originated by the broker/dealers who originate the bond offerings for which the
Company serves as trustee and paying agent. Currently, there are a limited
number of IRA trustees who allow church bonds as an investment in their IRA
accounts. The Company has been able to grow its IRA servicing business primarily
through marketing efforts directed at the broker/dealers with whom the Company
has a bond servicing relationship.
The Company intends to attempt to grow this business primarily through
marketing efforts of Mr. Hoeflinger directly to non-profit organizations. Mr.
Hoeflinger promotes the Company's IRA services through investment seminars
emphasizing the Company's ability and willingness to allow church bonds as a
self-directed IRA investment.
TRADITIONAL TRUST SERVICES; PERSONAL TRUST DIVISION
On November 1, 1995, the Company purchased all of the issued and
outstanding common stock of Camelback Trust Company ("Camelback"). Camelback was
merged with and into the Company on July 31, 1996. Camelback now operates as the
Company's Personal Trust Division.
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The Personal Trust Division provides traditional investment management,
administration and custodial services for customers with assets (cash,
securities, real estate or other assets) held in trust or in an investment
agency account. It also serves as custodian for self-directed IRA Accounts. At
March 31, 1997, the Personal Trust Division served as trustee or agent for 154
trust, other accounts, or investment agency accounts with a fair market value of
approximately $29 million, and served as custodian for approximately 104 IRA
Accounts with a fair market value of approximately $26 million.
The Personal Trust Division generates revenues based on two fee
structures. The first fee structure represents a percentage of the fiduciary
assets which the Company 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, the Personal Trust Division charges a flat annual fee
based on the type of asset and the services rendered for its services. The fee
varies depending the level of investment management the customer desires. The
Personal Trust Division 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.
The Company is party to an investment advisory agreement dated
September 1995 with Hackett Investment Advisors, Inc. ("HIA"), an investment
advisor located in Scottsdale, Arizona. Pursuant to this agreement, the Company
designates HIA, and HIA serves for the Company, as investment advisor on
substantially all of the designated investment accounts of the Personal Trust
Division. HIA further refers to the Personal Trust Division all business
opportunities for which an independent corporate fiduciary is necessary or
appropriate. The Company pays HIA 30% of the gross fees collected by the Company
from the Company's investment management accounts receiving HIA advisory
services, and 20% of the gross fees collected by the Company in the first year
from new accounts initiated by HIA. The agreement with HIA continues in effect
through January 31, 1998 and thereafter continues in effect for successive
two-year periods unless terminated by either party upon 90 days' written notice.
The majority of trust accounts for which the Personal Trust Division is
currently serving as trustee or agent were originated by HIA. Moreover, for the
year ended March 31, 1997, approximately 26% of the Company's trust fee revenues
were derived from five affiliated trust accounts.
The Company is also party to an employment agreement dated January 1996
with A.R. "Bud" Olson pursuant to which Mr. Olson is employed as the Company's
Vice President of Marketing for the Personal Trust Division. Mr. Olson has 37
years of experience as a trust professional, including 6 years of experience as
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a trust professional in Phoenix. Mr. Olson has primary responsibility for
developing trust business for the Personal Trust Division. The profitability of
the Personal Trust Division is dependent in large part on the efforts of Mr.
Olson and, to a lesser extent, HIA, to generate new trust business and upon the
ability of HIA to manage the trust accounts resulting from these efforts.
Revenues from the Personal Trust Division represented approximately 13% of the
Company's aggregate gross revenues for the year ended March 31, 1997. See
"-Growth Plans", "Item 10 - Executive Compensation Employment Agreements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations for the Years Ended March 31, 1997 and 1996."
GROWTH PLANS
The Company intends to attempt to expand its non-profit bond servicing
operations, its IRA Account servicing operations, and the Personal Trust
Division's traditional trust and investment agency servicing operations.
Although the Company may make additional acquisitions in the event opportunities
arise on favorable terms, the Company anticipates that expansion will result
primarily from internal development.
The Company intends to attempt to expand its non-profit bond servicing
operations by(I) attempting to increase the number of bond offerings it services
which are initiated by broker/dealers with whom the Company has an existing
relationship, and (ii) attempting to develop relationships with additional
broker/dealers from whom the Company will receive bond servicing referrals. The
Company also intends to attempt to develop additional sources of revenue by
serving as paying agent for non-profit loan funds established by denominations
of various religious organizations. The Company may establish a bond loan
program whereby a bond issuer meeting certain financial criteria could borrow
funds from the Company by pledging unsold bonds of the offering as collateral
for such loan in an amount equal to the loan. Bonds held as collateral for the
loan would accrue interest to the Company offsetting the interest charged for
the loan. In addition to the interest earned on the loaned funds, the Company
would earn a loan commitment fee. Mr. Hoeflinger will bear significant
responsibility for such matters. See "Item 9- Directors, Executive Officers,
Promoters and Control PersonsEmployment Agreements." There may be no assurance
that the Company will be successful in its efforts to increase bond servicing
revenues or to develop additional sources of revenue. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Results
of Operations for the Years Ended March 31, 1997 and 1996."
The Company intends to attempt to expand its IRA Account servicing
business through (I) attempting to develop relationships with new broker/dealers
with whom the Company has not previously had
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a relationship, and (ii) investment seminars emphasizing the Company's ability
and willingness to allow church bonds as a self-directed IRA investment. There
may be no assurance that the Company will be successful in its efforts to
increase IRA Account servicing revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Results of Operations
for the Year Ended March 31, 1997 and 1996."
The Company also intends to attempt to expand its traditional trust
account and investment agency account business by (I) attempting to procure
additional business from lawyers, accountants and other trust professionals in
the Phoenix area with whom the Company has an existing relationship, and (ii)
attempting to develop relationships with additional trust professionals in the
Phoenix area who will serve as referral sources for the Company. The Company
will be dependent primarily upon the efforts of Bud Olson, the Personal Trust
Division's Vice President of Marketing, and HIA, with whom the Company has an
investment advisory agreement, with respect to these matters. See "Item 10 -
Executive Compensation - Employment Agreements." There may be no assurances that
the Company will be successful in its efforts to increase trust account and
investment agency account servicing revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Results of Operations
for the Years Ended March 31, 1997 and 1996."
The foregoing discussion entitled "Growth Plans" contains
forward-looking statements within the meaning of Section 27A of the Securities
Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and is subject to the safe harbors created thereby. The Company's
actual future operations could differ materially because of the following
factors, among others: the Company's continued involvement in each of its
current businesses; the continued employment of key management, including
Messrs. Hoeflinger, Olson and John Johnson, the Company's Chief Executive
Officer; the success of Messrs. Hoeflinger and Olson in their respective
business development efforts; the Company's success in developing additional
sources of revenue; the continuation of the Company's investment advisory
agreement with HIA and HIA's success in managing the trust and IRA Accounts for
which it provides services; no material changes in existing laws, rules or
regulations affecting the Company's operations; competitive factors, such as
increased competition for the Company's services in one or more of the above
businesses; and an increase in interest rates or other economic factors having
an adverse impact on the Company's non-profit bond servicing business.
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COMPETITION
The Company's primary competitors in the non-profit bond servicing
business are Reliance Trust Company, Boatmens First National Bank, American
Church Trust Company and National City Bank. Some of these companies have
significantly greater financial and other resources than the Company. Increased
success by these competitors or increased competition from additional sources
could have a material adverse effect on the Company's financial condition and
results of operations.
Competition in the IRA Account servicing business is intense. However,
to date the Company has focused its efforts on procuring IRA account servicing
business from non-profit organizations and their members. Thus, the Company's
primary competition comes from the relatively small number of trustees who will
allow church bonds as a self-directed investment. The Company's primary
competitors in this business include Reliance Trust Company, American Church
Trust, First National Bank of Onaga and, to a lesser extent, broker/dealers,
banks and other financial institutions, investment advisors, money management
firms and other trust companies, many of which have significantly greater
financial and other resources than the Company.
The Company competes with the trust departments of large banks (and
other financial institutions) and, to a lesser extent, with other independent
trust companies for trust account and investment agency account business.
Although the Company has focused its efforts on trust accounts which are smaller
than those typically serviced by large banks, increased competition by large
banks for these accounts and/or increased success by other independent trust
companies could have a material adverse impact on the Company's financial
condition and results of operations. The large banks, and some of the
independent trust companies located in the Phoenix area, have significantly
greater financial and other resources than the Company.
REGULATION, LICENSING AND SUPERVISION
The Company's operations are subject to ongoing regulation, licensing
and supervision under various federal, state and local statutes, ordinances and
regulations, including but not limited to regulation by the Arizona Department
of Banking. Under applicable rules and regulations of the Arizona Department of
Banking, the Company files periodic reports with the Department and is subject
to periodic examinations of that Department.
Under legislation effective on July 20, 1996, the Company is required
to maintain net capital of at least $500,000; the Company's net capital was
approximately $1,556,000 on March 31, 1997. The legislation also requires that
the Company's net capital meet certain liquidity requirements. Specifically,
$166,666, $333,332 and $500,000 of such net capital must meet the Department's
liquidity requirements by December 31, 1997, December 31, 1998 and December 31,
1999, respectively. At March 31, 1997, none of the Company's net capital met the
Department's liquidity requirements. The Company believes that it will be able
to satisfy the foregoing liquidity requirements from cash on hand and other
assets of the Company.
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Notwithstanding the foregoing, the Company is currently attempting to
raise additional capital through a private placement stock offering. If
successful, the first proceeds of which will be used to satisfy the liquid net
capital requirement.
The Company believes that it is currently in substantial compliance
with all applicable federal, state and local laws and regulations.
EMPLOYEES
At March 31, 1997, the Company employed 27 persons. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTIES.
On March 15, 1995, the Company purchased an office building located at
5336 N. 19th Avenue in Phoenix, Arizona. The building is approximately 10,000
square feet in size and serves as the Company's executive offices. Prior to
March 15, 1995, the Company leased approximately 1,500 square feet of office
space for its executive offices at 2510 West Dunlap, Suite 232, in Phoenix,
Arizona. On March 15, 1995, the lease was assigned to an unrelated third party.
The lease terminated in September 1996.
The Company is also party to a lease for commercial office space
formerly occupied by Camelback as its executive office in Scottsdale, Arizona.
The office lease terminates on February 14, 1998.
ITEM 3. LEGAL PROCEEDINGS.
On November 1, 1996, a former employee of the Company filed a charge of
race discrimination before the Civil Rights Division of the Arizona Attorney
General's office (the "Agency"). The action was filed subsequent to the
employee's discharge by the Company. The Company filed its statement of position
on December 12, 1996, in which the Company denied all allegations of
discrimination or wrongdoing with respect to the former employee, and on January
27, 1997, the Company also filed responses to the Agency's interrogatories. The
matter remains pending before the Agency. At the present time, the Company has
been advised by its counsel in this matter that, in the opinion of such counsel,
it is too early in the administrative process to make a determination concerning
the potential outcome of such proceeding or the potential liability of the
Company as a result of this proceeding or other potential proceedings. However,
an adverse finding by the Agency could result in subsequent litigation that
could lead to an award of substantial monetary damages to the former employee
and against the Company, in addition to an award of attorney's fees, litigation
costs and potential equitable relief such as an injunction and/or reinstatement.
The former employee might also attempt to file a lawsuit against the Company
even in the face of a finding by the Agency adverse to the former employee's
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On June 1, 1997, the Company had approximately 3,100 stockholders of
record. There is no established public trading market for the Company's Common
Stock. The Company does not expect to pay dividends in the foreseeable future
but instead intends to retain future earnings, if any, to increase stockholders'
equity.
Initial purchases and sales of the Company's Common Stock occurred in
January 1991. See Item 1 - "Description of Business." The high and low sales
prices for the Company's Common Stock during the year ended March 31, 1997, were
$.30 and $.24 per share, respectively. Such prices represent negotiated sales
between buyers and sellers without mark-up, mark-down or retail commission. The
Company served as transfer agent in connection with all such transactions.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996. The
Company had net earnings of $163,725, or $.02 per share, for the fiscal year
ended March 31, 1997, compared to net earnings of $142,360, or $.02 per share,
for the year ended March 31, 1996. The Company had total revenue of $1,786,245
for the year ended March 31, 1997, compared to total revenue of $1,190,356 for
the prior year.
The Company's bond servicing income increased to $1,226,591 for the
year ended March 31, 1997, compared to $889,601 for the prior year. The increase
in bond servicing income was primarily attributable to the increase in the
number of bond accounts serviced by the Company. At March 31, 1997, the Company
had served as trustee and paying agent on 360 bond offerings totaling
approximately $332,000,000 in original principal amount; at March 31, 1996, the
Company had served as trustee and paying agent on 314 bond offerings totaling
approximately $243,000,000 in original principal amount. The Company anticipates
that its bond servicing income will increase in the year ending March 31, 1998,
by approximately 20% - 40% over current year levels as a result of an increase
in the number and principal amount of bond offerings for which the Company
serves as trustee and paying agent. The foregoing statement is a forwardlooking
statement within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21 E of the Securities Exchange Act of 1934, as amended,
and is subject to the safe harbors created thereby. Actual results could differ
materially because of the following factors, among others: the Company's
continued involvement in the bond servicing business during such period; the
continued employment of key management, including John Johnson, the Company's
Chief Executive Officer, and Mr. Hoeflinger, the Company's Vice President of
Marketing; the success of Mr. Hoeflinger in his efforts
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to develop additional bond servicing business for the Company; increased
competition for the Company's services; competitive pressures on prices for the
Company's services; and an increase in interest rates or other economic factors
having an adverse impact on the Company's bond servicing business.
Revenue from the Company's IRA Account servicing activities increased
to $352,018 in fiscal 1997, from $212,033 in the prior year, due primarily to an
increase in the number of IRA Accounts serviced by the Company. At March 31,
1997, the Company serviced 6,200 IRA Accounts with an aggregate value of
approximately $124,000,000, including 104 IRA Accounts with an aggregate value
of approximately $26,000,000 serviced by the Personal Trust Division; at March
31, 1996, the Company serviced 4,723 IRA Accounts with an aggregate value of
approximately $90,000,000. The Company anticipates that its IRA servicing
revenue will increase in the fiscal year ending March 31, 1998 by approximately
20% - 30% over current-year levels as a result of an increase in the number of
IRA Accounts serviced by the Company. The foregoing statement is a
forward-looking statement 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, and is subject to the safe harbors created thereby. Actual results
could differ materially because of the following factors, among others: the
Company's continued involvement in the IRA Account servicing business during
such period; the continued employment of key management, including John Johnson,
the Company's Chief Executive Officer, as well as Messrs. Hoeflinger and Olson;
the success of Messrs. Hoeflinger and Olson in their efforts to develop
additional IRA Account servicing business for the Company; the continuation of
the Company's investment advisory agreement with HIA and the success of HIA in
managing the IRA Accounts for which it provides services; increased competition
for the Company's services; competitive pressures on prices for the Company's
services; and changes in rules and regulations adversely impacting the use of
IRA's as investment and savings tools.
Trust income derived from the Personal Trust Division for fiscal 1997
increased to $173,603 from $56,088 in fiscal 1996. The trust income for fiscal
1996 represents revenues derived from the trust accounts, other accounts and the
investment management accounts of the Personal Trust Division for the period
November 1, 1995 to March 31, 1996.
The Company anticipates that trust income will increase by
approximately 30-50% in fiscal 1998. The foregoing statement is a
forward-looking statement 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, and is subject to the safe harbors created thereby. Actual results
could differ materially because of the following factors, among others: the
Company's continued involvement in the traditional trust company business during
such
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period; the continued employment of key management, including Messrs. Johnson
and Olson; the success of Mr. Olson in his business development efforts on
behalf of the Company; the continuation of the Company's investment advisory
agreement with HIA and the success of HIA in managing the trust and investment
agency accounts for which it provides services; increased competition for the
Company's services; competitive pressures on prices for the Company's services;
and changes in rules and regulations adversely impacting the traditional trust
business.
Interest income increased slightly to $34,033 in fiscal 1997, compared
to $32,634 in the prior year. The increase was primarily attributable to the
overall rise in interest rates.
The Company's general and administrative expenses increased in the
aggregate to $1,522,020 in fiscal 1997 from $951,092 in fiscal 1996 and
increased to 85.2% of revenues in the fiscal 1997 from 79.9% of revenues in the
previous fiscal year. This increase was attributable to the following factors:
(I) salary and related costs attributable to the addition of Mr. Hoeflinger and
nine administrative staff members; and (ii) other additional expenses related to
administering the Company's increased bond servicing business. The Company
anticipates that general and administrative expenses will increase in the
aggregate in fiscal 1998 but will remain relatively constant or decrease
slightly as a percentage of revenues from fiscal 1997 levels as a result of
spreading these increased costs over a larger revenue base. The foregoing
statement is a forward-looking statement 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, and is subject to the safe harbors created
thereby. Actual results could differ materially because of the following
factors, among others: the Company's continued involvement in each of its
current lines of business; the success of the Company's efforts to develop new
sources of revenue; the continued employment of key management; the success of
Messrs. Hoeflinger and Olson in their business development efforts on behalf of
the Company; the continuation of the Company's investment advisory agreement
with HIA and the success of HIA in managing the trust and investment agency
accounts for which it provides services; increased staffing or office needs not
currently anticipated; increased competition for the Company's services,
competitive pressures or prices for the Company's services; and changes in rules
and regulations adversely impacting the Company's lines of business.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995.
The Company had net earnings of $142,360, or $.02 per share, for the
fiscal year ended March 31, 1996, compared to net earnings of $118,229, or $.02
per share, for the year ended March 31, 1995. The Company had total revenue of
$1,190,356 for the year ended March 31, 1996, compared to total revenue of
$747,741 for the prior year.
13
<PAGE>
The Company's bond servicing income increased to $889,601 for the year
ended March 31, 1996, compared to $584,532 for the prior year. The increase in
bond servicing income was primarily attributable to the increase in the number
of bond accounts serviced by the Company. At March 31, 1996, the Company served
as trustee and paying agent on 314 bond offerings totaling approximately
$243,000,000 in principal amount; at March 31, 1995, the Company served as
trustee and paying agent on 263 bond offerings totaling approximately
$184,000,000 in principal amount.
Revenue from the Company's IRA servicing activities increased to
$212,033 in fiscal 1996, from $107,580 in the prior year, due primarily to an
increase in the number of IRA Accounts serviced by the Company. At March 31,
1996, the Company serviced 4,723 IRA Accounts with an aggregate value of
$89,947,034, including 74 selfdirected IRA accounts with an aggregate value of
$17,037,284 serviced by Camelback Trust Company; at March 31, 1995, the Company
serviced 3,115 IRA Accounts with an aggregate value of $34,466,963.
Trust income for fiscal 1996 totaled $56,088. The trust income
represents revenues derived from Camelback's investment management accounts for
the period November 1, 1995 to March 31, 1996.
Interest income decreased to $32,634 in fiscal 1996, compared to
$55,629 in the prior year. The decrease was primarily attributable to the
reduction of cash and cash equivalents as a result of the Company's cash
purchase of an office building in March 15, 1995, which serves as the Company's
executive offices.
The Company's general and administrative expenses increased in the
aggregate to $951,092 in fiscal 1996 from $552,944 in fiscal 1995 and increased
to 79.9% of revenues in the fiscal 1996 from 73.9% of revenues in the previous
fiscal year. This increase was attributable to the following factors: (I)
increased staff and payroll expense required to service the Company's expanded
bond and IRA account portfolio; (ii) additional payroll and lease expenses as a
result of the Camelback acquisition; and (iii) expenses related to the Company's
acquisition of the building which serves as its corporate headquarters.
LIQUIDITY AND CAPITAL RESOURCES
Under legislation effective on July 20, 1996, the Company is required
to maintain net capital of at least $500,000; the Company's net capital was
approximately $1,556,000 on March 31, 1997. The legislation also requires that
the Company's net capital meet certain liquidity requirements. Specifically,
$166,666, $333,332 and $500,000 of such net capital must meet the Department's
liquidity requirements by December 31, 1997, December 31, 1998 and December 31,
1999, respectively. At March 31, 1997, none of the Company's net capital met the
Department's liquidity requirements. The Company believes that it will be able
to satisfy the foregoing liquidity
14
<PAGE>
requirements from cash on hand and other assets of the Company. Notwithstanding
the foregoing, the Company is currently attempting to raise additional capital
through a private placement stock offering. If successful, the first proceeds of
which will be used to satisfy the liquid net capital requirement. See "Item 1 -
Business-Regulation, Licensing and Supervision."
ACCOUNTING MATTERS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS No. 121), which the Company adopted April 1, 1996, requires "that
long-lived assets and certain identifiable intangibles be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable." The
adoption of SFAS No. 121 did not have any significant effect on the Company's
financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123) establishes financial accounting and
reporting standards for stock-based employees compensation plans. These plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples
include stock purchase plans, stock options, restricted stock, and stock
appreciation rights. SFAS No. 123 also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
nonemployees. These transactions must be accounted for, or at least disclosed in
the case of stock options, based on the fair value of the considerations
received or the equity instruments issued, whichever is the more reliable
measure. The Company adopted the disclosure requirements of SFAS No. 123 for its
fiscal year ended March 31, 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
Earnings per share: In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings Per Share". This Statement
establishes standards for computing and presenting earnings per share ("EPS"),
and supersedes APB Opinion No. 15. This Statement replaces primary EPS with
basic EPS and requires dual presentation of basic and diluted EPS. This
Statement is effective for periods ending after December 15, 1997. Basic and
diluted EPS, as calculated under SFAS No. 128, would have been $.02 and $.02 for
the year ended March 31, 1997.
ITEM 7. FINANCIAL STATEMENTS.
The Company's audited financial statements, containing balance sheets
as of March 31, 1997 and 1996, and related statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 1997, are set forth on the following pages.
15
<PAGE>
COLONIAL TRUST COMPANY
Financial Statements
March 31, 1997, 1996 and 1995
(With Independent Auditors' Report Thereon)
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Colonial Trust Company:
We have audited the accompanying balance sheets of Colonial Trust Company
(Company) as of March 31, 1997 and 1996, and the related statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended March 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colonial Trust Company as of
March 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
May 16, 1997
17
<PAGE>
COLONIAL TRUST COMPANY
Balance Sheets
March 31, 1997 and 1996
ASSETS 1997 1996
------ ---- ----
Cash and cash equivalents $ 132,426 217,638
Investment securities (notes 2 and 3) -- 464,883
Receivables 150,228 110,245
Note receivable (note 4) 361,057 335,544
Property and equipment, net (note 5) 739,456 632,276
Excess of cost over fair value acquired (note 2) 165,590 185,047
Other assets (note 11) 166,443 104,751
---------- ----------
$1,715,200 2,050,384
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 113,610 59,808
Note payable (note 2) -- 540,000
Income taxes payable (note 7) 25,617 35,833
Deferred income taxes (note 7) 19,429 21,322
---------- ----------
158,656 656,963
---------- ----------
Stockholders' equity (notes 8, 10 and 11):
Common stock, no par value; 10,000,000 shares
authorized, 7,777,401 issued and outstanding
at March 31, 1997 and 1996 554,942 554,942
Additional paid-in capital 505,347 505,347
Retained earnings 496,255 332,530
Unrealized holding gains on securities
available for sale -- 602
---------- ----------
Total stockholders' equity 1,556,544 1,393,421
Commitments and contingencies (notes 6 and 10)
---------- ----------
$1,715,200 2,050,384
========== ==========
See accompanying notes to financial statements.
18
<PAGE>
COLONIAL TRUST COMPANY
Statements of Earnings
Years ended March 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Revenue (note 1):
Bond servicing income $1,226,591 889,601 584,532
IRA servicing fees 352,018 212,033 107,580
Interest income 34,033 32,634 55,629
Trust income 173,603 56,088 --
---------- --------- ---------
Total revenue 1,786,245 1,190,356 747,741
General and administrative expenses 1,522,020 951,092 552,944
---------- --------- ---------
Income before income taxes 264,225 239,264 194,797
Income taxes (note 7) 100,500 96,904 76,568
---------- --------- ---------
Net earnings $ 163,725 142,360 118,229
========== ========= =========
Net earnings per common share $ .02 .02 .02
========== ========= =========
Weighted average common shares out-standing 7,777,401 7,328,059 7,007,402
========== ========= =========
See accompanying notes to financial statements.
19
<PAGE>
COLONIAL TRUST COMPANY
Statements of Stockholders' Equity
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Holding Gains
Common Stock Additional on Securities Total
--------------------- Paid-in Retained Available Stockholders'
Shares Amount Capital Earnings For Sale Equity
---------- ---------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1994 7,007,402 $ 500,000 390,889 71,941 -- 962,830
Net earnings -- -- -- 118,229 -- 118,229
---------- ---------- ---------- ---------- ---------- ----------
Balances at March 31, 1995 7,007,402 500,000 390,889 190,170 -- 1,081,059
Issuance of stock (note 2) 769,999 54,942 114,458 -- -- 169,400
Net earnings -- -- -- 142,360 -- 142,360
Change in unrealized holding
gains on securities available
for sale -- -- -- -- 602 602
---------- ---------- ---------- ---------- ---------- ----------
Balances at March 31, 1996 7,777,401 554,942 505,347 332,530 602 1,393,421
Net earnings -- -- -- 163,725 -- 163,725
Change in unrealized holding
gains on securities available
for sale -- -- -- -- (602) (602)
---------- ---------- ---------- ---------- ---------- ----------
Balances at March 31, 1997 7,777,401 $ 554,942 505,347 496,255 -- 1,556,544
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
COLONIAL TRUST COMPANY
Statements of Cash Flows
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 163,725 142,360 118,229
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Loss on sale of investments 1,702 -- --
Depreciation and amortization 70,475 51,331 28,220
Deferred income taxes (1,893) 1,888 13,693
Increase in receivables (39,983) (25,282) --
Increase in other assets (61,692) (69,704) (37,935)
Increase (decrease) in accounts payable and
accrued liabilities 61,089 14,591 (1,530)
Increase (decrease) in income taxes payable (10,216) 11,997 (15,029)
--------- --------- ---------
Net cash provided by operating
activities 183,207 127,181 105,648
--------- --------- ---------
Cash flows from investing activities:
Cash acquired in Camelback acquisition -- 71,702 --
Costs incurred in Camelback acquisition -- (56,389) --
Repayment (purchase) of note receivable (25,513) -- 457,257
Proceeds from sale of investments 462,579 -- --
Purchase of property and equipment (165,485) (60,646) (560,986)
Proceeds from sale of furniture and equipment -- 3,441 --
--------- --------- ---------
Net cash provided by (used in)
investing activities 271,581 (41,892) (103,729)
--------- --------- ---------
Cash flows from financing activity:
Repayment of note payable (540,000) -- --
--------- --------- ---------
Net cash used in financing activities
(540,000) -- --
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (85,212) 85,289 1,919
Cash and cash equivalents at beginning of year 217,638 132,349 130,430
--------- --------- ---------
Cash and cash equivalents at end of year $ 132,426 217,638 132,349
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 27,195 -- --
========= ========= =========
Income taxes paid $ 100,813 83,062 28,464
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements
March 31, 1997, 1996 and 1995
(1) SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Colonial Trust Company (Colonial or 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 the
Company's common stock is registered under the Securities Exchange Act of
1934.
Colonial serves as trustee under various bond indentures for issuers of
bonds in 24 states. The issuers are primarily churches and other
religious 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 bonds, and in turn, pays the semiannual principal and
interest payments to the bondholders. As of March 31, 1997, Colonial was
serving as trustee for the benefit of the bondholders on 360 bond
offerings totaling approximately $267,000,000 in original principal
amount. The amount of sold and unmatured bonds total approximately
$216,000,000 at March 31, 1997. Colonial also serves as a trustee of
self-directed individual retirement accounts for certain bondholders or
employees of 6,082 religious organizations totaling approximately
$98,000,000 at March 31, 1997.
Colonial also serves as trustee or agent, provides investment management,
administration, and custodial services. As trustee or agent, Colonial
receives, holds, invests and tracks the performance of the various
securities held in trust, or investment agency accounts. Colonial was
serving as trustee or agent for 154 accounts with a fair market value
totaling approximately $29,000,000 at March 31, 1997. Colonial also acts
as custodian for self-directed IRA accounts. Colonial held 104 accounts
as custodian with a fair market value of approximately $26,000,000 at
March 31, 1997.
BASIS OF PRESENTATION
During 1996, Colonial acquired 100% of the outstanding common stock of
Camelback Trust Company (Camelback). All significant intercompany
balances and transactions were eliminated in the 1996 consolidation.
During fiscal 1997, the asset and liabilities of Camelback were
transferred to Colonial and Camelback was dissolved.
22
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
REVENUE RECOGNITION
Under the trust indentures with organizations issuing bonds, Colonial,
for its services, principally earns revenues based on three fee
structures. The first fee structure allows Colonial 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 printing costs during
the first year. Additionally, an annual maintenance fee is required each
succeeding year. The third fee structure entitles Colonial to interest
earnings up to 2.5% of daily trust funds held in bond program fund
accounts in lieu of a set-up fee. Annual maintenance fees and bond
printing costs are charged as a percentage of the related bond issuance.
Colonial also receives fees for services provided as custodian for
self-directed individual retirement accounts.
The profitability of Colonial is dependent upon the ability of investment
bankers to originate bond programs for which Colonial serves as trustee.
At March 31, 1997, approximately 85% of the total bond issues processed
were originated by 4 brokers.
In connection with providing investment management, administration and
custodial services, Colonial earns revenue based on two-fee structures.
The first fee structure is established as a percentage of the fiduciary
assets which Colonial holds as trustee or agent. Fees are assessed on a
quarterly basis to individual accounts according to the quarter's end
fair market value of the supporting fiduciary assets. The second fee
structure relates to an annual fee which is set up to cover the
maintenance of fiduciary assets which Colonial holds in both trust and
self-directed IRA accounts.
At March 31, 1997, 41% of Colonial's trust account assets were held in
trust for members of one family. The trust accounts combined for 26% of
Colonial's trust fee revenues.
CASH EQUIVALENTS, NONCASH SUPPLEMENTAL DISCLOSURE AND CONCENTRATION OF
CREDIT RISK
Colonial considers all highly liquid debt instruments with original
maturities at the date of purchase of three months or less to be cash
equivalents. Cash equivalents at March 31, 1997 and 1996 consist
primarily of money market accounts which invest primarily in short-term
government securities.
During 1996, Colonial acquired Camelback (note 2). In connection with the
acquisition, excess of cost over fair value acquired was recorded:
Fair value of assets acquired $ 594,008
Common stock issued (169,400)
Note payable assumed (540,000)
Liabilities assumed (74,726)
---------
Excess of cost over fair value acquired $ 190,118
=========
During fiscal 1997, the excess of cost over fair value of $190,118 was
reduced by $7,288 to reflect the fair market value of assets and liabilities
assumed.
23
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
Colonial places its cash in insured financial institutions and United
States government securities with original maturities of three months or
less. At March 31, 1997, Colonial had no deposits at financial
institutions in excess of the FDIC insurance limit of $100,000.
NOTE RECEIVABLE
Colonial considers a note to be impaired when it is probable that the
Company will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired,
the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the note's effective interest
rate. Impairment losses are charged to expense. Generally, cash receipts
will first be applied to reduce accrued interest and then to reduce
principal.
INVESTMENT SECURITIES
Investments are stated at fair value and classified as available for
sale. Unrealized holding gains (losses) are shown as a separate component
of stockholders' equity, net of the related tax effect. Cost is adjusted
for the amortization of premiums to the earlier of maturity or call date
and the accretion of discounts to maturity using the interest method.
Gains and losses from the sale of investment securities are computed
under the specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation on furniture and equipment is recorded on the straight-line
method over the estimated useful lives of the assets ranging from 3 to 7
years. Colonial's building is depreciated over 39.5 years using the
straight-line method.
ORGANIZATIONAL COSTS
Certain costs incurred in the organization of Colonial have been
capitalized. These costs were being amortized, through March 1995, using
the straight-line method over five years.
EXCESS OF COST OVER FAIR VALUE ACQUIRED (GOODWILL)
Goodwill arose in connection with the acquisition of Camelback by
Colonial on November 1, 1995 and is amortized using the straight-line
method over 15 years. Goodwill is carried net of accumulated amortization
of $17,240 and $5,071 at March 31, 1997 and 1996, respectively.
24
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
INCOME TAXES
Colonial uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
COMPUTATION OF NET EARNINGS PER COMMON SHARE
Earnings per share is based on the weighted average number of common
shares outstanding plus dilutive common stock equivalents.
STOCK OPTION PLAN
Prior to April 1, 1996, Colonial accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price underlying stock exceeded
exercise price. On April 1, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of the grant. Alternatively, SFAS No. 123
also allows entities to continue to apply provisions of APB Opinion No.
25 and provide pro forma net earnings and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Colonial adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on April 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net undiscounted cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on
Colonial's financial position, results of operations, or liquidity.
25
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) ACQUISITION
On November 1, 1995, Colonial purchased all the issued and outstanding
common stock of Camelback. As of the date of its acquisition, Camelback
served 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, including a
$540,000 note payable, of Camelback was $197,046. This amount included
$27,646 cash 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
goodwill was reduced by $7,288 to reflect the fair market value of assets
and liabilities assumed. The goodwill will be amortized over 15 years. In
connection with the $540,000 note payable, Colonial assumed Camelback's
pledge of investment securities as collateral for the debt. The note
payable was repaid in full on August 1, 1996 including accrued interest.
The statement of earnings for 1996 includes the five month results of
operations of Camelback from November 1, 1995.
The following unaudited pro forma summary presents the results of
operation as if Colonial had acquired Camelback as of April 1, 1994. The
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would
actually have resulted had the combination been in effect on the date
indicated:
(UNAUDITED)
----------------------
1996 1995
--------- -------
Total revenues 1,274,506 850,090
Net earnings 100,540 104,432
Net earnings per common share .01 .01
26
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
(3) INVESTMENT SECURITIES
SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market value of securities available for
sale at March 31, 1996 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government and
corporate bonds $136,433 1,059 (1,309) 136,183
Mortgage-backed
securities 327,447 2,175 (922) 328,700
-------- -------- -------- --------
$463,880 3,234 (2,231) 464,883
======== ======== ======== ========
The amortized cost and estimated market value of investment securities at
March 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Amortized Market
Cost Value
-------- -------
Due in one year or less $150,456 151,093
Due after one through five years 176,991 177,607
Mortgage-backed securities 136,433 136,183
-------- --------
$463,880 464,883
======== ========
During 1997, Colonial used proceeds from the investment securities to pay
the $540,000 note payable. Colonial realized gains of $584 from the sale
of the investment securities.
(4) NOTE RECEIVABLE
On December 1, 1990, Colonial entered into a Master Note and Letter
Agreement with Church Loans, a real estate investment trust and
Colonial's 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 interest rate and is unsecured. Amounts advanced
to Church Loans may be repaid and reborrowed.
27
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1997 1996
---- ----
Land $157,241 157,241
Building 428,545 375,991
Furniture 108,329 75,914
Equipment 271,461 190,945
-------- --------
965,576 800,091
Less accumulated depreciation 226,120 167,815
-------- --------
$739,456 632,276
======== ========
(6) LEASE COMMITMENTS
Colonial leases office space and certain equipment under various
noncancelable operating lease arrangements. Rent expense totaled $17,507
for 1997, $7,876 for 1996, and $23,773 for 1995.
On March 15, 1995, Colonial's former office lease was assigned to an
unrelated party. Colonial has no future obligation on the lease, except
that Colonial remains liable for rent and other charges under the lease
in the event the assignee of the lease fails to pay such costs. The lease
terminated on September 30, 1996.
The equipment lease has one year remaining as of March 31, 1997. Future
minimum lease payment required for 1998 is $11,925.
(7) INCOME TAXES
Income taxes amounted to $100,500, $96,904 and $76,568 for 1997, 1996 and
1995, respectively. The actual income tax expense differs from "expected"
income tax expense for those years (computed by applying the U.S. federal
corporate statutory income tax rate of 34% to earnings before income
taxes) as follows:
1997 1996 1995
---- ---- ----
Computed "expected" income taxes $ 89,837 81,350 66,231
State taxes (net of federal income
tax benefit) 12,458 13,111 4,045
Surtax exemption -- (1,045)
Other items, net (1,795) 2,443 7,337
--------- --------- ---------
$ 100,500 96,904 76,568
========= ========= =========
Effective tax rate 38.0% 40.5% 39.3%
========= ========= =========
28
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
Components of income taxes consist of:
Current Deferred Total
------- -------- -----
1997:
Federal $ 83,026 (1,401) 81,625
State 19,367 (492) 18,875
--------- --------- ---------
$ 102,393 (1,893) 100,500
========= ========= =========
1996:
Federal $ 75,646 1,393 77,039
State 19,370 495 19,865
--------- --------- ---------
$ 95,016 1,888 96,904
========= ========= =========
1995:
Federal $ 59,622 10,817 70,439
State 3,253 2,876 6,129
--------- --------- ---------
$ 62,875 13,693 76,568
========= ========= =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at March 31, 1997 and 1996 are
presented below:
1997 1996
---- ----
Deferred tax liability:
Property and equipment, principally due
to differences in depreciation and deductions $19,429 18,129
Prepaid expenses -- 3,193
------- -------
Net deferred tax liability $19,429 21,322
======= =======
29
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
(8) STOCK OPTION PLAN
Colonial's shareholders approved Colonial's Employee Stock Option Plan
(the "ESOP") and Colonial's Non-Employee Directors Stock Option Plan (the
"Directors Plan") on April 25, 1996.
Pursuant to the ESOP, the Colonial's Board of Directors is authorized to
grant either incentive stock options or nonstatutory stock options. The
exercise price of incentive stock options granted under the ESOP must be
equal to the fair market value per share on the date of grant, and the
exercise price of nonstatutory stock options must be at least 50% of the
fair market value per share on the date of grant. A total of 2,000,000
shares have been reserved for issuance under the ESOP.
Pursuant to the Directors Plan, each non-employee director received an
option to purchase 50,000 shares on the date the Directors Plan was
approved by Colonial's stockholders and options to purchase 15,000 shares
are automatically granted on January 1, 1997 and on each January 1
thereafter to each person then serving as a non-employee director of
Colonial. The exercise price of all options granted under the Directors
Plan must be equal to the fair market value per share on the date of
grant. A total of 500,000 shares have been reserved for issuance under
the Directors Plan.
At March 31, 1997, there were 1,376,710 shares available for grant under
the ESOP Plan and 305,000 shares available for grant under the Directors
Plan. The per share weighted average fair value of stock options granted
during 1997 was $.25 on the date of grant using the Black Scholes Model
with the following weighted average assumptions: expected dividend yield
0%, volatility of 10%, risk free interest rate of 6.5% and an expected
life of 6 years.
At March 31, 1997, the exercise price and weighted average remaining
contractual life of options was $.25 and 5 years, respectively.
Weighted
Average
Exercise Price
Number Per Share
------ ---------
Outstanding, March 31, 1996 -- $ --
Granted during the year 818,290 .25
Canceled during the year -- --
Exercised during the year -- --
------- ----
Outstanding, March 31, 1997 818,290 $.25
======= ====
Eligible for exercise at March 31, 1997 528,290 $.25
======= ====
30
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
Colonial applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had Colonial determined compensation
cost based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's net earnings would have been reduced to
the pro forma amount indicated below:
Net earnings:
As reported $163,725
========
Pro forma $152,725
========
Earnings per share:
As reported $ .02
========
Pro forma $ .02
========
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. The following
summary presents a description of the methodologies and assumptions used
to determine such amounts.
CASH AND CASH EQUIVALENTS
The carrying amount is assumed to be the fair value because of the
liquidity of these instruments.
RECEIVABLES AND NOTES RECEIVABLE
Fair value is considered to be equal to the carrying value of the
accounts and notes receivables, as they are generally short-term in
nature and the related amounts approximate fair value or are receivable
on demand.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Changes in assumptions
could significantly affect these estimates. Since the fair value is
estimated as of March 31, 1997 and 1996, the amounts that will actually
be realized or paid at settlement or maturity of the instruments could be
significantly different.
31
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
(10) COMMITMENTS AND CONTINGENCIES
Colonial is subject to the maintenance of a minimum capital requirement
of $500,000 pursuant to State of Arizona banking regulations.
Colonial is involved in lawsuits and claims incidental to the ordinary
course of its operations. In the opinion of management, based on
consultation with legal counsel, the effect of such matters will not have
a material adverse effect on the Company.
(11) PRIVATE PLACEMENT MEMORANDUM
During fiscal 1997, Colonial began soliciting equity capital via a
$1,000,000 private placement memorandum. The time period for Colonial to
sell its common stock under this memorandum expires June 30, 1997.
Colonial has capitalized $54,692 of costs included in other assets
associated with the offering as of March 31, 1997.
32
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table contains information regarding the directors and
executive officers of the Company at March 31, 1997:
Name Position Age
---- -------- ---
Lynn R. Camp Chairman of the Board 60
and Director
Michael W. Borger Director 42
Gerald G. Morgan Director 41
John K. Johnson President and Chief 39
Executive Officer and
Director
Cecil E. Glovier Sr.Vice President 45
Secretary
Marvin D. Hoeflinger Vice President 54
Christopher J. Olson Vice President/Treasurer 31
A.R. Olson Vice President 61
33
<PAGE>
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Both Messrs. Camp and
Borger were members of the Board of Directors of Church Loans prior to becoming
directors of the Company.
Lynn R. Camp has served as a director of the Company since June 1990
and as Chairman of the Board since October 1990. Mr. Camp is President, Chief
Executive Officer and a director of Turnkey Computer Systems, Inc. ("Turnkey
Computer"). Mr. Camp has served in these capacities for in excess of five years.
Turnkey Computer sells computer equipment and software and furnishes computer
maintenance and repair services in Amarillo, Texas.
Michael W. Borger has served as a director of the Company since June
1990. He previously served the Company as Vice President of the Company August
1991 until November 1995. From June 1990 to August 1991 he served as President
of the Company. Mr. Borger is President, Chief Executive Officer and a director
of Turnkey Leasing Corp. ("Turnkey Leasing"). Mr. Borger has served in these
capacities for in excess of five years. Turnkey Leasing, located in Amarillo,
Texas, leases computers, general office equipment and construction equipment to
business users. Turnkey Leasing is also engaged in the business of making
business loans.
Gerald G. Morgan has served as a director of the Company since October
1990. Mr. Morgan is a partner in the law firm of Burdett, Morgan and Thomas,
located in Amarillo, Texas. Mr. Morgan has served in this capacity for a period
in excess of 5 years.
John K. Johnson has served as the Company's President since August
1991. He previously served as the Company's Vice President from June 1990 to
August 1991. Mr. Johnson was Vice President of Trust Company of America, a trust
company engaged in the business of furnishing trust services in connection with
bond offerings by churches and other non-profit organizations, from June 1979
until December 1989.
Cecil E. Glovier has served as Vice President/Secretary of the Company
since November 1995. He previously served as the Company's Secretary/Treasurer
from June 1990 to November 1995. Prior to his employment with the Company, Mr.
Glovier was engaged in the business of furnishing computer programming services
for a period in excess of 5 years. During this period he also was engaged as a
mutual fund and life insurance sales representative.
Marvin D. Hoeflinger has served as Vice President of the Company since
February 1996. Prior to his employment with the Company, Mr. Hoeflinger was
Senior Vice President and a Managing Principal of Reliance Trust Company, a
Georgia full service trust company, from October 1984 until February 1996. Mr.
Hoeflinger is employed pursuant to the terms of an employment agreement with the
Company. See "Item 1 - Executive Compensation - Employment Agreements" and
Exhibit 10(e) hereto.
34
<PAGE>
Christopher J. Olson has served as Treasurer of the Company since
November 1995. Mr. Olson also serves as Vice President of Camelback Trust
Company. Prior to his employment with the Company, he served as President and
Chief Executive Officer of Camelback Trust Company from January 1993 to November
1995.
A. R. Olson has served as Vice President of Camelback Trust Company
since January 1996. Prior to his employment with Camelback he was Vice President
of Norwest Trust in St. Cloud, Minnesota from April 1993 to January 1996. Mr.
Olson was Sr. Vice President for Administration of Harris Trust Bank in
Scottsdale, Arizona from September 1986 to April 1993. Mr. Olson is employed
through January 2, 1998 pursuant to the terms of an employment agreement with
Camelback. See "Item 10 - Executive Compensation - Employment Agreements" and
Exhibit 10(f) hereto.
Based on information provided to it, the Company believes that all of
its directors and executive officers have complied with Section 16(a) of the
Exchange Act during the fiscal year ended March 31, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid during each of the Company's last three fiscal years to John
K. Johnson, the Company's Chief Executive Officer (the "Named Executive
Officer"). The Company has no executive officer whose salary, bonuses and other
compensation earned during the fiscal year ended March 31, 1997 exceeded
$100,000.00:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Fiscal Securities Underlying
Principal Position Year Salary Bonus Options Sars (#)
- ------------------ ---- ------ ----- ----------------
CEO-John K. Johnson 1997 80,000 12,872 300,000(a)
President 1996 55,000 8,811 0
1995 55,000 7,200 0
(a) On July 1, 1996, Mr. Johnson was granted options to purchase 300,000 shares
of Common Stock of the Company with an exercise price of $.25 per share,
options to purchase 150,000 shares vested immediately upon grant; options
to purchase the remaining 150,000 shares vest in three equal installments
of 50,000 each on July 1, 1997, 1998 and 1999, respectively.
35
<PAGE>
The following table sets forth certain information concerning option
grants during the Company's last fiscal year to the Company's Named Executive
Officer:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options Granted
Name and Underlying Options to Employees in Exercise of Expiration
Principal Position Granted (#) Fiscal Year Base Price($/Sh) Date (A)
- ------------------ ----------- ----------- ---------------- --------
<S> <C> <C> <C> <C>
CEO-John K. Johnson 300,000 48.1% $.25/sh 7/1/2002
President
</TABLE>
(a) Options to purchase 150,000 shares expire on July 1, 2002; options to
purchase 50,000 shares expire on July 1, 2003; options to purchase 50,000
shares expire on July 1, 2004; options to purchase 50,000 shares expire on
July 1, 2005.
The following table sets forth certain information concerning (a) stock
option exercises during the Company's last fiscal year by the Company's Named
Executive Officer, and (b) the value of unexercised stock options held by the
Named Executive Officer at March 31, 1997:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at FY-End at FY-End ($)
Name and Acquired On Value (#) Exercisable/ Exercisable/
Principal Position Exercise(#) Realized($) Unexercisable Unexercisable
- ------------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
CEO-John K. Johnson 0 $0 150,000/150,000 $0
President
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Johnson,
the Company's President, Mr. Hoeflinger, the Company's Vice President of
Marketing, and Mr. Olson, a Vice President.
Mr. Johnson's agreement has a three-year term which runs through June
30, 1999. Under the agreement, Mr. Johnson's base salary is $80,000 per year.
Mr. Johnson is also entitled to an annual bonus each year in which the Company
generates net earnings, calculated according to the following formula: (y) net
earnings per share, multiplied by (z) a number of shares equal to 10% of the
Company's issued and outstanding shares of Common Stock at March 31, 1997. Such
bonus, if any, is payable 100 days from the end of the Company's fiscal year.
The agreement also provided for 300,000 incentive stock options with an exercise
36
<PAGE>
price of $.25 per share, a total of 150,000 of which vested immediately upon
grant. The remaining 150,000 options vest in three equal installments of 50,000
each on July 1, 1997, 1998 and 1999, respectively. The agreement also contains
confidentiality and non-compete covenants.
Mr. Hoeflinger's agreement, entered into in February 1996, calls for a
base salary of $65,000 per year, plus potential bonuses payable annually in the
event stated performance goals are met. Mr. Hoeflinger is also entitled to
receive options to purchase up to 35,000 shares of the Company's Common Stock on
January 1, 1997 and on each January 1 thereafter during the term of the
Agreement; the exercise price for such options shall be equal to the fair market
value of the Company's Common Stock on the date such options are granted. Mr.
Hoeflinger is also entitled to health and other insurance benefits,
reimbursement of reasonable business expenses, and other benefits on the same
basis as the Company's other executive officers. The agreement with Mr.
Hoeflinger runs through December 31, 2000, unless terminated earlier by the
Company for "cause" or for Mr. Hoeflinger's failure to meet certain objective
performance goals contained in the agreement.
Under the agreement with Mr. Olson, entered into in January 1996, Mr.
Olson is paid a base salary of $24,000 per year, plus additional compensation
equal to a certain percentage of the fees collected by the Company's Personal
Trust Division in the twelve months following origination from accounts
originated by Mr. Olson. Mr. Olson is also entitled to health and other
insurance benefits, reimbursement of business related expenses and other
benefits on the same basis as the Company's other executive officers. The
agreement with Mr. Olson runs through December 31, 1998, unless terminated
earlier by the Company for "cause" or by Mr. Olson upon 60 days written notice.
DIRECTORS' COMPENSATION
The Company's non-employee directors were paid $15,600 in cash as a
group during the fiscal year ended March 31, 1997 for services as directors.
Each director is paid $200 per month for serving as a director and $200 for each
meeting attended. The Chairman is paid an additional $100 per month for serving
as Chairman. The Company's non-employee directors also receive an annual grant
of 15,000 stock options with an exercise price equal to the then-current
exercise price of the Company's Common Stock on the date of grant. Directors who
are also officers of the Company are not compensated for their services as
directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of June 1, 1997,
concerning the Common Stock beneficially owned by each director of the Company,
by the Company's Named Executive Officer, and by all officers and directors of
the Company as a group. To the Company's knowledge, no person owns more than 5%
of the Company's issued and outstanding Common Stock.
37
<PAGE>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Owner(1) of Class
------------------- ---------------------- --------
Lynn R. Camp 130,443 shares* 1.7%
3517 Tripp
Amarillo, Texas 79121
Michael W. Borger 94,718 shares 1.2%
1602 S. Travis
Amarillo, Texas 79102
Gerald G. Morgan, Jr. 85,100 shares 1.1%
4705 Olsen
Amarillo, Texas 79106
John K. Johnson(2) 280,531 shares 3.0%
3414 E. Clark Road
Phoenix, Arizona 85024
Directors and Executive 809,826 shares 10.4%
Officers as a Group(3)
- ----------
(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant, or right. Shares of Common Stock subject to
options, warrants, or rights which are currently exercisable within 60 days
are deemed outstanding for computing the percentage of the person holding
such options, warrants or rights, but are not deemed outstanding for
computing the percentage of any other person. The amounts and percentages
are based upon 7,777,401 shares of Common Stock outstanding on June 1,
1997.
(2) The total for Mr. Johnson includes 150,000 shares of Common Stock subject
to immediately exercisable options, which have an exercise price of $.25
per share, and 50,000 shares of Common Stock subject to exercisable options
which vest on July 1, 1997, which have an exercise price of $.25 per share.
(3) The total for all directors and executive officers as a group includes
578,290 shares subject to unexercised options that are exercisable on June
1, 1997 or within 60 days thereafter.
The Company has no knowledge of any arrangement which may result in a
change of control of the Company.
38
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements of the Company are set forth in Part II,
Item 7.
(2) Exhibits
Exhibit Number Page Number
-------------- -----------
3. (I) Articles of Incorporation **
(ii) By-Laws **
10. (a) Agreement with Great Nation Investment
Corporation ***
(b) Form of IRA Account Agreement ***
(c) Form of Trust Indenture Agreement ***
(d) Agreements between Church Loans & ****
Investments Trust, Ben C. Powell
and Secured Investors Securities, Inc.
(e) Employment Agreement with Marvin Hoeflinger *****
(f) Employment Agreement with A. R. "Bud" Olson *****
11. Schedule of Computation of Earnings Per Share *
27. Financial Data Schedule *
----------
* Filed herewith
** Incorporated by reference to Exhibit No. 3 to the Registrant's Form 10
dated October 24, 1990.
*** Incorporated by reference to Exhibit No. 10 to Registrant's Annual
Report on Form 10-K dated June 21, 1991.
**** Incorporated by reference to Exhibit No. 10 to Registrant's Form 10
dated October 24, 1990.
***** Incorporated by reference to Exhibit No. 10 to Registrant's Annual
Report Dated June 27, 1996.
(b) REPORTS ON FORM 8-K
None.
39
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COLONIAL TRUST COMPANY
BY:/S/ Cecil E. Glovier
----------------------------------
Cecil E. Glovier
Vice President/Secretary
(Principal Financial Officer)
Date: June 20, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Lynn R. Camp Chairman of the Board June 20, 1997
- ---------------------------
Lynn R. Camp
/s/ Michael W. Borger Director June 20, 1997
- ---------------------------
Michael W. Borger
/s/ Gerald G. Morgan Director June 20, 1997
- ---------------------------
Gerald G. Morgan
/s/ John K. Johnson President and June 20, 1997
- --------------------------- Director
John K. Johnson (Principal Executive
Officer)
40
EXHIBIT 11 - SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
Formula: Net income/Weighted Average Shares Outstanding -
Net Income Per Common Share
Twelve-month period ended:
March 31, 1996 $142,360 / 7,328,235 shares = $.02 Net Income per
Common Share
March 31, 1997 $163,725 / 7,777,401 shares = $.02 Net Income per
Common Share
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 132,426
<SECURITIES> 0
<RECEIVABLES> 511,285
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 810,154
<PP&E> 965,576
<DEPRECIATION> (226,120)
<TOTAL-ASSETS> 1,715,200
<CURRENT-LIABILITIES> 158,656
<BONDS> 0
0
0
<COMMON> 554,942
<OTHER-SE> 1,001,602
<TOTAL-LIABILITY-AND-EQUITY> 1,715,200
<SALES> 1,786,245
<TOTAL-REVENUES> 1,786,245
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,522,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 264,225
<INCOME-TAX> 100,500
<INCOME-CONTINUING> 163,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,725
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
