SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 75-2294862
- ------------------------ ------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
5336 N. 19th Avenue
Phoenix, Arizona 85015
----------------------------------------
(Address of principal executive offices)
602-242-5507
-------------------------------
(Registrant's telephone number)
NONE
--------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act 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 Discussion and Analysis or
Plan of Operation 10
Part II. Other Information
Item 1: Legal Proceedings 12
Item 2: Changes in Securities 12
Item 3: Default Upon Senior Securities 12
Item 4: Submission of Matters to a Vote of
Security Holders 12
Item 5: Other Information 12
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURES
Item 7: Exhibit 11 - Schedule of Computation
Of Earnings Per Share 14
2
<PAGE>
COLONIAL TRUST COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
June 30, 1997 and March 31, 1997
June 30, 1997 March 31, 1997
ASSETS (Unaudited)
------------- --------------
Cash and cash equivalents $ 143,515 132,426
Receivables 240,732 150,228
Note receivable 367,945 361,057
Property, furniture and equipment, net 740,169 739,456
Goodwill, net 162,547 165,590
Other assets 82,906 166,443
---------- ----------
$1,737,814 1,715,200
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 114,864 113,610
Income tax payable 9,701 25,617
Deferred income taxes 21,322 19,429
---------- ----------
145,887 158,656
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 531,638 496,255
---------- ----------
Total stockholders' equity 1,591,927 1,556,544
---------- ----------
$1,737,814 1,715,200
========== ==========
See accompanying notes to condensed financial statements.
3
<PAGE>
COLONIAL TRUST COMPANY
Condensed Statements of Operations (Unaudited)
Three-month periods ended
June 30,
1997 1996
------- --------
Revenue:
Bond servicing income $ 365,469 272,283
IRA servicing fees 132,561 90,487
Trustee fees 59,207 35,625
Interest income 9,571 8,282
---------- ----------
Total revenue 566,808 406,677
========== ==========
General and administrative expenses 507,341 351,269
---------- ----------
Income before income tax 59,467 55,408
---------- ----------
Income taxes 24,084 22,163
---------- ----------
Net income $ 35,383 33,245
========== ==========
Net income per common share .005 .004
========== ==========
Weighted average common shares
outstanding 7,777,401 7,777,401
========== ==========
See accompanying notes to condensed financial statements and Exhibit 11.
4
<PAGE>
COLONIAL TRUST COMPANY
Condensed Statements of Cash Flows (Unaudited)
Three-month periods
ended June 30,
1997 1996
---------- ----------
Cash flows from operating activities:
Net income $35,383 33,245
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization 3,043 9,959
Depreciation 17,981 12,976
Increase in other receivables (90,504) (26,490)
(Increase) Decrease in other assets 83,537 (22,156)
Decrease in accounts payable, accrued
liabilities and income taxes (12,769) (31,252)
--------- ---------
Net cash provided by (used in) operating
activities 36,671 (23,718)
Cash flows from investing activities:
Purchase of property, furniture and equipment (18,694) (18,594)
Purchase of note receivable (6,888) (6,187)
Decrease in investment securities 0 2,125
--------- ---------
Net cash used in investing activities (25,582) (22,656)
--------- ---------
Increase (Decrease) in cash and cash equivalents 11,089 (46,374)
Cash at beginning of period 132,426 217,638
--------- ---------
Cash at end of period $ 143,515 171,264
========= =========
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 24 states. The issuers are primarily churches
and other non-profit organizations. As trustee, the Company
receives, holds, invests and disburses the bond proceeds as directed
by the applicable trust indenture and receives weekly or monthly
sinking fund payments from the issuer of the bonds, and, as paying
agent, pays the semi-annual principal and interest payments to the
bondholders.
The Company also serves as trustee of self-directed individual
retirement accounts for certain bondholders or employees of
religious organizations.
On November 1, 1995, the Company purchased all of the issued and
outstanding capital stock of Camelback Trust Company ("Camelback").
Camelback serves as trustee or agent, providing investment
management, administration, and custodial services for customers
with various securities held in trust or for investment agency
accounts.
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.
(c) 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.
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 June 30, 1997, the Company's total net capital was approximately $1,592,000,
of which none was considered liquid, compared to net capital of approximately
$1,556,000 at March 31, 1997, of which none was considered liquid. 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 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"). Camelback serves as
trustee or agent, providing investment management, administration, and custodial
services for customers with various securities held in trust or investment
agency accounts.
The total consideration paid by Colonial for the net assets of Camelback was
$197,046. This amount included $27,646 cash (including $12,046 for Camelback's
furniture and equipment) and 769,999 shares of unregistered common stock of
Colonial valued at $169,400 ($.22 per share). The carrying value of Camelback's
net assets approximated their fair market value at the date of acquisition,
resulting in goodwill of $190,118. 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.
The Company's cash and cash equivalents increased from $132,426 on March 31,
1997 to $143,515 on June 30, 1997, while the note receivable increased from
$361,057 on March 31, 1997 to $367,945 on June 30, 1997. The increase in cash
10
<PAGE>
and cash equivalents was due to the results of operations and the increase in
the note receivable was 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 $984,270 on June 30, 1997. The increase was
primarily due to the purchase of additional furniture and computer equipment.
RESULTS OF OPERATIONS - THREE-MONTH PERIOD ENDED JUNE 30, 1997
The Company reported an increase in net income for the three-month period ended
June 30, 1997 compared to the comparable prior period. The Company had net
income of $35,383, or $.005 per share, for the three-month period ended June 30,
1997, compared to net income of $33,245, or $.004 per share, for the three-month
period ended June 30, 1996. The Company had total revenue of $566,808 for the
three-month period ended June 30, 1997, compared to total revenue of $406,677
for the three-month period ended June 30, 1996.
The Company's bond servicing income increased to $365,469 for the three-month
period ended June 30, 1997, compared to $272,283 for the three-month period
ended June 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 June 30, 1997, the Company had served as trustee for the benefit of
bondholders on 434 bond offerings totaling approximately $348,000,00 in original
principal amount; as of June 30, 1996, the Company had served as trustee for the
benefit of bondholders on 342 bond offerings totaling approximately $262,000,000
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 $132,561 for the three-month period ended
June 30, 1997, compared to $90,487 for the three-month period ended June 30,
1996. This increase was due primarily to an increase in the number of IRA
Accounts serviced by the Company. As of June 30, 1997, the Company served as
trustee for 6,558 self-directed IRA Accounts with total assets of approximately
$128,000,000; as of June 30, 1996, the Company served as trustee for 4,918
self-directed IRA Accounts with total assets of approximately $79,364,000.
Trustee fee income increased to $59,207 for the three-month period ended June
30, 1997, compared to $35,625 for the three-month period ended June 30, 1996.
This increase was due to an increase in the number of accounts for which the
Company serves as trustee or agent.
11
<PAGE>
Interest income increased to $9,571 for the three-month period ended June 30,
1997, compared to $8,282 for the three-month period ended June 30, 1996. The
increase was primarily attributable to changes in interest rates.
The Company's general and administrative expenses increased to $507,341 for the
three-month period ended June 30, 1997, compared to $351,269 for the three-month
period ended June 30, 1996. The increase was due primarily to the addition of
several staff members, as well as additional expenses involved in administering
the Company's increased bond servicing business and an increase in depreciation
expense incurred for costs capitalized for 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 June 30, 1997 and June 30, 1996.
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.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLONIAL TRUST COMPANY
DATE: August 11, 1997 BY:John K. Johnson
---------------- -------------------------
John K. Johnson
Its: President
DATE: August 11, 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 period ended:
June 30, 1997 $35,383 / 7,777,401 shares = $.005 Net Income per Common Share
June 30, 1996 $33,245 / 7,777,401 shares = $.004 Net Income per Common Share
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 143,515
<SECURITIES> 0
<RECEIVABLES> 608,677
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 835,098
<PP&E> 984,270
<DEPRECIATION> 244,101
<TOTAL-ASSETS> 1,737,814
<CURRENT-LIABILITIES> 124,565
<BONDS> 0
0
0
<COMMON> 554,942
<OTHER-SE> 1,036,985
<TOTAL-LIABILITY-AND-EQUITY> 1,737,814
<SALES> 566,808
<TOTAL-REVENUES> 566,808
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 507,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 59,467
<INCOME-TAX> 24,084
<INCOME-CONTINUING> 35,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,383
<EPS-PRIMARY> .005
<EPS-DILUTED> .005
</TABLE>
