<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________.
Commission File Number 000-18887
COLONIAL TRUST COMPANY
(Exact name of registrant as specified in its charter)
Arizona 75-2294862
(State of Incorporation) (IRS Employer Identification
Number)
5336 N. 19th Avenue
Phoenix, Arizona 85015
(Address of principal executive offices)
602-242-5507
(Registrant's telephone number)
NONE
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act
<PAGE> 2
after the distribution of securities under a plan confirmed by court.
Yes ___ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date:
7,777,401
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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COLONIAL TRUST COMPANY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information:
Item 1: Financial Statements 4
Condensed Balance Sheets 4
Condensed Statements of Operations 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7
Item 2. Management Discussion and Analysis or
Plan of Operation 11
Part II. Other Information
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Default Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of
Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
SIGNATURES
Item 7: Exhibit 11 - Schedule of Computation
Of Earnings Per Share 15
</TABLE>
3
<PAGE> 4
COLONIAL TRUST COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
December 31, 1996 and March 31, 1996
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1996
ASSETS (Unaudited)
---------- --------------
<S> <C> <C>
Cash and cash equivalents $ 190,708 217,638
Investment securities 0 464,883
Receivables 145,821 110,245
Note receivable 354,591 335,544
Property, furniture and equipment, net 678,809 632,276
Goodwill, net 168,272 185,047
Other assets 100,992 104,751
---------- ---------
$1,639,193 2,050,384
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 108,224 59,808
Note payable 0 540,000
Income tax payable 14,745 35,833
Deferred income taxes 21,322 21,322
---------- ---------
144,291 656,963
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized,
7,777,401 issued and outstanding 554,942 554,942
Additional paid-in capital 505,347 505,347
Retained earnings 434,613 333,132
---------- ---------
Total stockholders' equity 1,494,902 1,393,421
---------- ---------
$1,639,193 2,050,384
========== =========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
COLONIAL TRUST COMPANY
Condensed Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three-month periods ended Nine-month periods ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from trust services:
Bond servicing income $ 314,460 227,274 905,937 637,198
IRA servicing fees 69,565 37,536 230,750 127,857
Trust fee income 53,353 31,991 125,431 31,991
Interest income 8,907 7,896 25,479 24,510
--------- --------- --------- ---------
Total revenue 446,285 304,697 1,287,597 821,556
========= ========= ========= =========
General and administrative
expenses 390,085 246,651 1,114,519 672,092
--------- --------- --------- ---------
Income before income taxes 56,200 58,046 173,078 149,464
Income taxes 22,715 23,509 70,051 60,533
--------- --------- --------- ---------
Net income $ 33,485 34,537 103,027 88,931
========= ========= ========= =========
Net income per common share $ .004 .004 .013 .012
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements and Exhibit 11.
5
<PAGE> 6
COLONIAL TRUST COMPANY
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine-month periods
ended December 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 103,027 88,931
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization 9,127 2,364
Depreciation 41,403 33,612
Increase in other receivables (35,576) 0
(Increase) Decrease in other assets 9,861 (14,536)
Increase in accounts payable, accrued
liabilities and income taxes 27,328 18,495
-------- --------
Net cash provided by operating
activities 155,170 128,866
Cash flows from investing activities:
Purchase of property, furniture and equipment (87,936) (43,527)
Purchase of note receivable (19,047) (19,066)
Payment of note payable (540,000) 0
Decrease in investment securities 464,883 0
Net cash paid for acquistion 0 (15,600)
--------- --------
Net cash used in investing activities (182,100) (78,193)
--------- --------
Increase (Decrease) in cash and
cash equivalents (26,930) 50,673
Cash at beginning of period 217,638 132,349
-------- --------
Cash at end of period $ 190,708 183,022
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
6
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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 1996 Annual Report on
Form 10-KSB.
(a) Nature of Business
The Company was incorporated on August 15, 1989 in the State of
Arizona for the purpose of engaging in the business of acting as
a fiduciary. The Company is domiciled in the State of Arizona, is
regulated by the Arizona State Banking Department, and its Common
Stock is registered under the Securities Exchange Act of 1934.
The Company serves as trustee under various bond indentures for
issuers of bonds in 24 states. The issuers are primarily churches
and other non-profit organizations. As trustee, the Company
receives, holds, invests, and disburses the bond proceeds as
directed by the applicable trust indenture and receives weekly or
monthly sinking fund payments from the issuer of the bonds, and,
as paying agent, pays the semi-annual principal and interest
payments to the bondholders.
The Company also serves as trustee of self-directed individual
retirement accounts for certain bondholders or employees of
religious organizations.
On November 1, 1995, the Company purchased all of the issued and
outstanding capital stock of Camelback Trust Company (Camelback).
Camelback serves as trustee or agent, providing investment
management, administration, and custodial services for customers
with various securities held in trust or for investment agency
accounts. The accompanying consolidated financial statements
include the results of Camelback for the nine-month period ended
December 31, 1996.
7
<PAGE> 8
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 escrow agent,
paying agent and transfer agent as follows. For its services as
escrow agent, the Company is compensated under one of two fee
options. Under the first fee option, the Company is paid a
one-time set-up fee equal to .1% of the original amount of the
bonds issued, and also is paid an amount equal to 2.5% per annum
of the daily undisbursed balance of the bonds. This fee is paid
monthly. Under the second fee option, the Company charges the
non-profit organizatin a fixed fee for the various services to be
provided by the Company. The Company's policy is to allow the
non-profit organization to choose between the first and second
fee options. The Company believes that the first fee option is
currently utilized by a majority of the Company's competitors.
For its services as paying agent and transfer agent, the Company
is compensated under one of two fee options. Under the first fee
option, the Company is paid an annual fixed fee equal to .3% of
the principal amount of the bonds issued. Under the second fee
option, the Company retains all interst earned form the
investment of the sinking fund balances under the bond issue,
subject to a minimum charge (paid monthly) equal to .4% of the
sinking fund balances per annum. Under the second fee option, the
Company is also paid a weekly fee equal to a percentage of the
original amount of the bonds issued; this weekly fee equals
.00001 of the principal amount of the bonds issued.
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.
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COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
The Company's Personal Trust Division generates revenues based on
two fee structures. The first structure represents a percentage
of the fiduciary assets which are held as trustee or agent. Fees
are assessed on a quarterly basis to individual accounts
according to the fair market value of the supporting fiduciary
assets in such account at the end of each quarter. Under the
second fee structure, 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 management the customer
desires. The Company 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 Personal Trust Division's results of operations are
included in the condensed financial statements for the nine-month
period ended December 31, 1996; however, since the acquisition of
Camelback did not occur until November 1,1995,results of
operations for the nine-month period ended December 31, 1995 only
include Camelback's results of operations for November and
December, 1995.
(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. 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
9
<PAGE> 10
COLONIAL TRUST COMPANY
Notes to Condensed Financial Statements
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.
4. Promissory Note
In connection with the acquisition of Camelback Trust Company, the Company
issued a Promissory Note to the shareholders of Camelback in the amount of
$540,000. The Company held investments available for sale of approximately
$540,000 as security for the Promissory Note. The Promissory Note was due
on August 1, 1996, including all interest from November 1, 1995 through
maturity. On July 31, 1996, this Promissory Note was paid in full by
transferring the investment securities held as collateral to the holder of
the Promissory Note, including all interest earned from November 1, 1995
through July 31, 1996.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995:
This Form 10-QSB may contain one or more forward-looking statements within
the meaning of Section 21 E of the Securities Exchange Act of 1934, as
amended, and is subject to the safe harbors created thereby. These
forward-looking statements involve risks and uncertainties, including, but
not limited to: the Company's continued involvement in each of its current
businesses; the continued employment of key management, including John
Johnson, the Company's Chief Executive Officer, Marv Hoeflinger, the
Company's Vice President of Business Development, Bud Olson, the Company's
Vice President of Business Development - Personal Trust business, and
Christopher J. Olson, the Company's Vice President and senior officer
responsible for the Company's Personal Trust Business; the success of
Messrs. Johnson, Hoeflinger and 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
10
<PAGE> 11
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.
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 July 20, 1997. At
December 31, 1996, the Company's total net capital was approximately $1,494,902,
of which none was considered liquid, compared to net capital of approximately
$1,400,000 at March 31, 1996, of which $385,000 was considered liquid.
Additionally, the legislation requires the Company to have liquid net capital of
$333,332 by July 20, 1998 and liquid net capital of $500,000 by July 20, 1999.
At this time, the Company has no other sources of capital or liquidity available
to the Company, other than interest income earned and fees received by the
Company. Management believes that net 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. Notwithstanding the foregoing, the Company intends to
attempt to raise approximately $1 million in additional equity capital during
fiscal 1997. Such funds would be used to satisfy the liquidity requirements
imposed by the State of Arizona, to support expansion of the Company's existing
businesses, to develop additional lines of business.
On November 1, 1995, the Company purchased all the issued and outstanding
capital stock of Camelback Trust Company ("Camelback"). Camelback serves as
trustee or agent, providing investment management, administration, and custodial
services for customers with various securities held in trust or investment
agency accounts.
The total consideration paid by Colonial for the net assets of Camelback was
$197,046. This amount included $27,646 cash (including $12,046 for Camelback's
furniture and equipment) and 769,999 shares of unregistered common stock of
Colonial valued at $169,400 ($.22 per share). The carrying value of Camelback's
net assets approximated their fair market value at the date of acquisition,
resulting in goodwill of $190,118. In connection with the Company's issuance of
a $540,000 Promissory Note payable to the former shareholders of Camelback,
approximately $540,000 of the Company's
11
<PAGE> 12
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 decreased from $217,638 on March 31,
1996 to $190,708 on December 31, 1996, while the note receivable increased from
$335,544 on March 31, 1996 to $354,591 on December 31, 1996. The decrease in
cash and cash equivalents and the increase in the note receivable were primarily
due to the reinvestment of cash in the note receivable. The Company's property
and equipment increased from $632,276 on March 31, 1996 to $678,809 on December
31, 1996. The increase was primarily due to the purchase of additional
furniture, equipment and computer software.
Results of Operations - Three-month and Nine-month Periods Ended December 31,
1996
The Company reported an increase in net income for the nine-month period and a
decrease in the three-month period ended December 31, 1996 compared to
comparable prior periods. The Company had net income of $33,485, or $.004 per
share, for the three-month period ended December 31, 1996, compared to net
income of $34,537, or $.004 per share, for the three-month period ended December
31, 1995. The Company had net income of $103,027, or $.013 per share, for the
nine-month period ended December 31, 1996, compared to net income of $88,931, or
$.012 per share, for the nine-month period ended December 31, 1995.
The Company had total revenue of $446,285 for the three-month period ended
December 31, 1996, compared to total revenue of $304,697 for the nine-month
period ended December 31, 1995. The Company had total revenue of $1,287,597 for
the nine-month period ended December 31, 1996, compared to total revenue of
$821,556 for the nine-month period ended December 31, 1995.
The Company's bond servicing income increased to $314,460 for the three-month
period ended December 31, 1996, compared to $227,274 for the three-month period
ended December 31, 1995. The Company's bond servicing income increased to
$905,937 for the nine-month period ended December 31, 1996, compared to $637,198
for the nine-month period ended December 31, 1995. The increase was primarily
attributable to the increase in the number of bond issues for which the Company
serves as Trustee and Paying Agent. As of December 31, 1996, the Company served
as trustee for the benefit of bondholders on 386 bond offerings totaling
approximately $308,334,000 in original principal amount; as of December 31,
1995, the Company was serving
12
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as trustee for the benefit of bondholders on 308 bond offerings totaling
approximately $227,000,000 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 $69,565 for the three-month period ended
December 31, 1996, compared to $37,536 for the three-month period ended December
31, 1995. Income from IRA accounts increased to $230,750 for the
nine-month period ended December 31, 1996, compared to $127,857 for the
nine-month period ended December 31, 1995. This increase was due primarily to an
increase in the number of IRA accounts serviced by the Company. As of December
31, 1996, the Company served as trustee for 5,668 self-directed IRA accounts
with total assets of approximately $113,500,000; as of December 31, 1995, the
Company served as trustee for 4,245 self-directed Individual Retirement Accounts
with total assets of approximately $65,500,000.
Fee income totaled $53,353 for the three-month period ended December 31,1996 and
$125,431 for the nine-month period ended December 31, 1996. This fee income
represents the Personal Trust Division's gross income from managed accounts
where Colonial acts as Trustee.
Interest income increased to $8,907 for the three-month period ended December
31, 1996, compared to $7,896 for the three-month period ended December 31, 1995.
Interest income increased to $25,479 for the nine-month period ended December
31, 1996, compared to $24,510 for the nine-month period ended December 31, 1995.
The fluctuations were primarily attributable to changes in interest rates.
The Company's general and administrative expenses increased to $390,085 for the
three-month period ended December 31, 1996, compared to $246,651 for the
three-month period ended December 31, 1995. The Company's general and
administrative expenses increased to $1,114,519 for the nine-month period ended
December 31, 1996, compared to $672,092 for the nine-month period ended December
31, 1995. The increases were due primarily to the addition of Mr. Hoeflinger,
two staff members in the Company's legal department, and one administrative
staff member, as well as additional expenses involved in administering the
Company's increased bond servicing business, and purchase of a new computer
system to be used in the Company's bond servicing business.
The Company's income tax rate was 40.5% for both of the three-month periods
ended December 31, 1996 and December 31, 1995. The Company's income tax rate was
40.5% for the both of the nine-month periods ended December 31, 1996 and
December 31, 1995.
13
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PART II. OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities
None.
Item 3: Default Upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
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: February 12, 1997 BY:John K. Johnson
-------------------------------
John K. Johnson
Its: President
DATE: February 12, 1997 BY:Cecil E. Glovier
-------------------------------
Cecil E. Glovier
Its: Chief Financial
Officer
14
<PAGE> 15
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:
December 31, 1995 $34,537 / 7,520,735 shares = $.004 Net Income per
Common Share
December 31, 1996 $33,485 / 7,777,401 shares = $.004 Net Income per
Common Share
Nine-month period ended:
December 31, 1995 $88,931 / 7,178,513 shares = $.012 Net Income per
Common Share
December 31, 1996 $103,027 / 7,777,401 shares = $.013 Net Income per
Common Share
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 190,708
<SECURITIES> 0
<RECEIVABLES> 500,412
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 792,112
<PP&E> 888,027
<DEPRECIATION> (209,218)
<TOTAL-ASSETS> 1,639,193
<CURRENT-LIABILITIES> 108,224
<BONDS> 0
0
0
<COMMON> 554,942
<OTHER-SE> 939,960
<TOTAL-LIABILITY-AND-EQUITY> 1,639,193
<SALES> 1,287,597
<TOTAL-REVENUES> 1,287,597
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,114,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 173,078
<INCOME-TAX> 70,051
<INCOME-CONTINUING> 103,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,027
<EPS-PRIMARY> .013
<EPS-DILUTED> .013
</TABLE>
