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, 1999
[ ] 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
(Name of small business issuer 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
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act
Common Stock, no par value
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
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 in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuers' revenues for its most recent fiscal year: $3,072,236.
The aggregate market value of the Common Stock held by
non-affiliates of the Registrant was $2,466,204 as of
June 1, 1999.
As of June 1, 1999, 758,832 shares of the Registrant's
Common Stock were outstanding.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1: Description of Business . . . . . . . . . 4
Item 2: Description of Properties . . . . . . . . 12
Item 3: Legal Proceedings . . . . . . . . . . . . 12
Item 4: Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 13
PART II
Item 5: Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . 13
Item 6: Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . 13
Item 7: Financial Statements . . . . . . . . . . . 24
Item 7.a Qualitative Risks . . . . . . . . . . . . 40
Item 8: Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . 40
PART III
Item 9: Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . 41
Item 10: Executive Compensation . . . . . . . . . . 43
Item 11: Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . 47
Item 12: Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . 49
Item 13: Exhibits and Reports on Form 8-K . . . . . 49
PART I
<PAGE>
Item 1. Description of Business.
Forward Looking Statements
This report contains forward looking statements. Additional
written or oral forward looking statements may be made by the
Company from time to time by filings with the Securities and
Exchange Commission or otherwise. Such forward looking
statements are within the meaning of that term in Section
27A of the Securities Act of 1993, as amended (the
"Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Such statements may include, but not be limited to,
projection of revenues, income, or loss, estimates of
capital expenditures, plans for the future operations,
products or services, and financing needs or plans, as
well as assumptions relating to the foregoing. The words
"believe", "expect", "anticipate", "estimate", "project"
and similar expressions identify forward looking
statements, which speak only as of the date the statement
was made. Forward looking statements are inherently
subject to risks and uncertainties, some of which cannot
be predicted or quantified. Future events and actual
results could differ materially from those set forth in,
contemplated by, or underlying the forward looking statements.
The Company undertakes no obligation to publicly update
or revise any forward looking statements, whether as a
result of new information , future events, or otherwise.
The following disclosures, as well as other statements in
this Report on Form 10-KSB, including but not limited to
those contained below in "Item 1: Description of Business
- -Growth Plans," and "Item 6: Management's Discussion and
Analysis or Plan of Operation," describe factors, among
others, that could contribute to or cause such differences,
or that could affect the Company's stock price.
<PAGE>
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.
Business Segments
The Company currently has two business segments: Corporate
Trust and Personal Trust. The Corporate Trust segment
provides services including serving as custodian for
individual retirement accounts ("IRA Accounts"), and
trustee for bond offerings of churches and other non-profit
organizations. The Company is presently primarily engaged
in serving as trustee and paying agent on bond programs of
churches and other non-profit organizations. Through its
Personal Trust segment, the Company provides traditional
investment management, administration and custodial
services for customers with trust assets. This segment
also serves as trustee or custodian for IRA Accounts.
Corporate Trust Segment
Bond Offering Services
Historically, the Company's primary business has been
serving as trustee and paying agent for bond offerings
of churches and other non-profit organizations. The
majority of these bonds are sold by broker-dealers in
offerings that 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 fund payments to
bondholders pursuant to a trust indenture between the
Company and the non-profit organization. In instances
in which a bondholder has transferred ownership of a
bond for which the Company is serving as paying agent,
the Company serves as transfer agent and effects the
transfer of such bond between the former and current
bondholder. If the non-profit organization defaults under
the terms of the trust indenture, the Company forecloses
on the property securing the payment of 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.
<PAGE>
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 a $10
fee in instances in which the company serves as transfer
agent.
As of March 31, 1999, the Company had served as trustee
and paying agent on 574 bond offerings totaling approximately
$514 million in original principal amount. The foregoing
includes a total of 87 bond offerings in original principal
amount of approximately $124 million originated in the
fiscal year ended March 31, 1999. The Company's revenues
from these activities represented approximately 66% of
the Company's aggregate revenues for the year ended March
31, 1999. See "Item 6-Management's Discussion and
Analysis or Plan of Operation - Results of Operations-Results
of Operations for the Years Ended March 31, 1999 and 1998."
<PAGE>
As of March 31, 1999, all bond programs for which
the Company was serving as trustee and paying agent
had been originated by fourteen broker/dealers, and
four of those broker/dealers had originated bonds
representing approximately 78% 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 is attempting to procure additional
business from the broker/dealers with whom the Company
currently has a relationship, and is also 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.
<PAGE>
At March 31, 1999, the Company was serving as trustee
for approximately 8,143 IRA Accounts with an aggregate
value of approximately $136 million. Revenue from the
Company's activities in this area represented
approximately 15% of the Company's aggregate revenues
for the year ended March 31, 1999. See "Item
6-Management's Discussion and Analysis or Plan of
Operation - Results of Operations for the Years
Ended March 31, 1999 and 1998."
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 directed at
non-profit organizations. The Company promotes its
IRA services through investment seminars emphasizing
the Company's ability and willingness to allow church
bonds as a self-directed IRA investment.
<PAGE>
Personal Trust Segment
The Personal Trust segment 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 and trustee for managed
IRA accounts. At March 31, 1999, the Personal Trust
segment served as trustee or agent for 304 trust, other
accounts, or investment agency accounts with a fair
market value of approximately $61 million, and served
as custodian or trustee for approximately 198 IRA
Accounts with a fair market value of approximately
$38 million.
The Personal Trust segment 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 segment charges a flat annual fee based on the
type of asset and the services rendered for its services.
The fee varies depending on the level of investment
management the customer desires. This segment charges
either a flat annual fee of $500 plus $25 per special
asset, or a percentage of total assets held in the account
for IRA Accounts for which it serves as custodian or trustee.
The Personal Trust segment is party to an investment
advisory agreement dated December 1998 with Hackett
Investment Advisors, Inc. ("HIA"), an investment
advisor located in Scottsdale, Arizona. Pursuant to
this agreement, this business segment designates HIA,
and HIA serves for the Company, as investment advisor
on a portion of the investment accounts of the Personal
Trust segment. HIA further refers to the Personal Trust
segment all business opportunities for which an
independent corporate fiduciary is necessary or
appropriate. The Personal Trust segment pays HIA
30% of the gross fees collected by the Company from
the segment's investment management accounts receiving
HIA advisory services. The agreement with HIA is
scheduled to terminate on December 31, 2000.
<PAGE>
The Personal Trust segment is also party to an
investment advisory agreement dated January 2,
1997 with Wright Investors Services ("WIS").
WIS is an investment advisor located in Bridgeport,
Connecticut. Pursuant to this agreement, this
segment designates WIS, and WIS serves for the
segment, as investment advisor on a portion of the
designated investment accounts of the Personal
Trust segment. The Company pays WIS 30% or 10%,
depending upon the type of account, of the gross
fees collected by the segment from the segment's
investment management accounts for which WIS serves
as investment advisor. The agreement initially
ran through January 31, 1998. The agreement
automatically renews for subsequent terms of
one year each, unless either party notifies the
other in writing at least three months in advance
of the anniversary date of its intent to terminate
the agreement. The agreement has been renewed and
continues in effect until January 31,2000.
The Personal Trust segment is currently negotiating
an investment advisory agreement with Feldman Securities
Group, L.L.C. ("FSG"). FSG is an investment advisor
located in Chicago, Illinois. The intent of this agreement
is for FSG to serve as investment advisor on a portion
of the designated investment accounts of this segment.
The profitability of the Personal Trust segment is
largely dependent on the Company's ability to manage
the trust accounts resulting from these efforts.
Revenues from the Personal Trust segment represented
approximately 19% of the Company's aggregate gross
revenues for the year ended March 31, 1999. See
"-Growth Plans" and "Management's Discussion and
Analysis or Plan of Operation - Results of Operations
for the Years Ended March 31, 1999 and 1998."
<PAGE>
Growth Plans
The Company intends to attempt to expand its non-profit
bond servicing operations, its IRA Account servicing
operations, and its 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 (i) attempt to expand its
non-profit bond servicing operations by 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)
attempt 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. 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 or Plan of
Operation - Results of Operations for the Years Ended
March 31, 1999 and 1998."
<PAGE>
The Company intends to (i) attempt to expand its IRA
Account servicing business through attempting to
develop relationships with new broker/dealers with
whom the Company has not previously had a relationship,
and (ii) host 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
or Plan of Operation - Results of Operations for the
Year Ended March 31, 1999 and 1998."
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 segment's Vice President
of Marketing, with respect to these matters. 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 or Plan of Operation - Results
of Operations for the Years Ended March 31, 1999 and 1998."
<PAGE>
The foregoing discussion entitled "Growth Plans" contains
forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934 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 business segments; 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 marketing its existing relationships
with broker/ dealers who can serve as referral sources
for the Company; the Company's success in developing
additional relationships with broker/dealers who can
serve as new sources for referrals for the Company;
the continuation of the Company's investment advisory
agreements with WIS, FSG, and HIA and their success
in managing the trust and IRA Accounts for which they
provide 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 business
segments; an increase in interest rates or other
economic factors having an adverse impact on the Company's
non-profit bond servicing business and other factors
set forth in "Management's Discussion and Analysis or
Plan of Operation."
Competition
<PAGE>
The Company's primary competitors in the non-profit bond
servicing business are Reliance Trust Company, Herring
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.
<PAGE>
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
$2,100,527 on March 31, 1999. 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, 1999, $337,551 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.
The Company believes that it is currently in substantial
compliance with all applicable federal, state and
local laws and regulations.
Employees
At March 31, 1999, the Company employed 36 people.
None of the Company's employees are covered by a
collective bargaining agreement. The Company considers
its relations with its employees to be good.
<PAGE>
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 was also a party to a lease for commercial
office space formerly occupied by the Personal Trust
segment. The office lease terminated 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 Agency failed to take action
before the expiration of the Arizona Statute of
Limitations. The matter has therefore been referred
to the United States Equal Employment Opportunity
Commission (" EEOC") and is pending before that 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 EEOC 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 EEOC adverse to the former employee's
position.
<PAGE>
Item 4. Submission of Matters to a Vote of Security holders.
None.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
On June 1, 1999, the Company had approximately 2,700
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 and to satisfy the capital and liquidity
requirements of the Arizona Banking Department. See
"Business-Regulation, Licensing and Supervision".
On September 24, 1998, the Company's stockholders
approved a one-for-ten reverse stock split of the Company's
issued and outstanding common stock. All share amounts,
share prices and earnings per share have been retroactively
adjusted for all periods presented to reflect this reverse
split.
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, 1999, were $3.25 and $3.00
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 or Plan of
Operation
Results of Operations for the Years Ended March 31,
1999 and 1998.
The Company had net earnings of $378,958, or $.49
diluted earnings per share, for the fiscal year ended
March 31, 1999, compared to net earnings of $214,358,
or $.27 diluted earnings per share, for the year ended
March 31, 1998, an increase in net earnings of 77%.
The Company had total revenue of $3,072,236 for the
year ended March 31, 1999, compared to total revenue
of $2,346,610 for the prior year, an increase of 31%.
<PAGE>
Corporate Trust Personal Trust Other Total
1999
Bond
Servicing
Income $2,006,221 - - $2,006,221
IRA
Servicing
Fees 448,328 $120,064 - 568,392
Trust
Income - 445,569 - 445,569
Interest
Income - - $52,054 52,054
$2,454,549 $565,633 $52,054 $3,072,236
General
& Admin-
istrative
Expenses $1,257,385 $483,462 $692,137 $2,432,984
1998
Bond
Servicing
Income $1,582,917 - - $1,582,917
IRA
Servicing
Fees 348,660 $95,331 - 443,991
Trust
Income - 279,903 - 279,903
Interest
Income - - 39,799 39,799
$1,931,577 $375,234 39,799 $2,346,610
<PAGE>
General
& Admin-
istrative
Expenses $866,149 $327,116 $791,220 $1,984,485
1997
Bond
Servicing
Income $1,226,591 - - $1,226,591
IRA
Servicing
Fees 297,631 $54,387 - 352,018
Trust
Income - 173,603 - 173,603
Interest
Income - - $34,033 34,033
$1,524,222 $227,990 $34,033 $1,786,245
General
& Admin-
istrative
Expenses $685,900 $193,792 $642,328 $1,522,020
The Corporate Trust segment's income increased $522,972
to $2,454,549, or 27% for the year ended March 31, 1999,
as compared to 1998. The Personal Trust segment's income
increased $190,399 to $565,633 or 51% for the year ended
March 31, 1999, as compared to 1998.
<PAGE>
The Corporate Trust segment's bond servicing income
increased to $2,006,221 for the year ended March 31,
1999, compared to $1,582,917 for the year ended March
31, 1998 an increase of 27%. 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, 1999, the Company was
serving as trustee and paying agent on 466 bond offerings
totaling approximately $409,000,000 in original
principal amount; at March 31, 1998, the Company was
serving as trustee and paying agent on 418 bond
offerings totaling approximately $315,000,000 in original
principal amount. The Company anticipates that its
bond servicing income will increase in the year ending
March 31, 2000, 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.
Revenue from the Corporate Trust segment's IRA
Account servicing activities increased to $448,328
for the fiscal year ended March 31, 1999, compared
to $348,660 for the fiscal year ended March 31, 1998,
an increase of 29%. Revenue from the Personal Trust
segment IRA Account servicing activities increased
to $120,064 for the fiscal year ended March 31, 1999
compared to $95,331 for the fiscal year ended March
31, 1998, an increase of 26%.
<PAGE>
At March 31, 1999, the Corporate Trust segment was
servicing 8,143 IRA Accounts with an aggregate value
of approximately $136,000,000 and the Personal Trust
segment was servicing 198 IRA accounts with an aggregate
value of approximately $38,000,000. At March 31, 1998,
the Corporate Trust segment was servicing 6,503 IRA
Accounts with an aggregate value of approximately
$117,000,000, and the Personal Trust segment was
servicing 141 accounts with an aggregate value of
approximately $26,000,000. The Company anticipates
that its IRA Account servicing revenue will increase
in the fiscal year ending March 31, 2000 as a result
of an increase in the number of IRA Accounts serviced
by these segments.
The Personal Trust segment's trust income increased
to $445,569 for the fiscal year ended March 31, 1999,
compared to $279,903 for the prior fiscal year, an
increase of 59%. At March 31, 1999, the Personal Trust
segment was serving as trustee or agent for 304 trust,
investment accounts, or other accounts with a fair
market value of approximately $61,000,000. The Company
anticipates that trust income will increase in fiscal
2000 as a result of an increase in the number of
accounts serviced by this segment.
Interest income increased to $52,054 for the fiscal
year ended March 31, 1999, compared to $37,799 in
the prior fiscal year, an increase of 38%. The increase
was primarily attributable to a larger balance held
for investment.
<PAGE>
The Corporate Trust segment's general and administrative
expenses increased in the aggregate to $1,257,385
for the fiscal year ended March 31, 1999, compared
to $866,149 for the prior fiscal year, and increased
to 51% of segment revenues for the fiscal year ended
March 31, 1999, from 45% of segment revenues in the
prior fiscal year. The Personal Trust segment's
general and administrative expenses increased in the
aggregate to $483,462 for the fiscal year ending
March 31, 1999, compared to $327,116 for the prior
fiscal year, and decreased to 85% of segment revenues
for the fiscal year ended March 31, 1999, compared to
87% of segment revenues in the prior fiscal year.
The Company anticipates that general and administrative
expenses will increase in the aggregate for both
segments in the fiscal year 2000, but will remain
relatively constant or decrease slightly as a percentage
of revenues from fiscal 1999 levels as a result of
spreading these increased costs over a larger revenue
base.
The foregoing discussion contains various forward-
looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the
Securities Exchange Act, and is subject to the safe
harbors created thereby. Forward looking statements
are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified.
Actual results could differ materially because of
the following factors, among others: the Company's
continued involvement in each of its current business
segments; the Company's success in maintaining
relationships with the broker/dealers with whom it
currently does business; the success of the Company's
efforts to develop relationships with other broker
/dealers who can serve as a source of referral for the
Company; 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
agreements with HIA, WIS and FSG and their success in
managing the trust and investment agency accounts for
which they provide 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
business segments.
<PAGE>
Results of Operations for the Years Ended March 31,
1998 and 1997.
The Corporate Trust income increased $407,355 to
$1,931,577, or 27% for the year ended March 31,
1998, as compared to 1997. The Personal Trust
income increased $147,244 to $375,234 or 65% for
the year ended March 31, 1998, as compared to 1997.
The Company had net earnings of $214,358, or $.27
diluted earnings per share, for the fiscal year ended
March 31, 1998, compared to net earnings of $163,725,
or $.21 diluted earnings per share, for the year
ended March 31, 1997, an increase in net earnings
of 31%. The Company had total revenue of $2,346,610
for the year ended March 31, 1998, compared to total
revenue of $1,786,245 for the fiscal year ended March
31, 1997, an increase of 31%.
The Corporate Trust segment's bond servicing income
increased to $1,582,917 for the fiscal year ended
March 31, 1998, compared to $1,226,591 for the fiscal
year ending March 31, 1997, an increase of 29%. 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, 1998,
the Company was serving as trustee and paying agent
on 418 bond offerings totaling approximately $315,000,000
in principal amount; at March 31, 1997, the Company
was serving as trustee and paying agent on 360 bond
offerings totaling approximately $267,000,000 in
principal amount. Revenue from the Company's IRA
Account servicing activities increased to $443,991
for the fiscal year ended March 31, 1998 compared to
$352,018 for the fiscal year ended March 31, 1997,
an increase of 26%, due primarily to an increase in
the number of IRA Accounts serviced by the Company.
Revenue from the Corporate Trust segment's IRA
Account servicing activities increased to $348,660
for the fiscal year ended March 31, 1998, compared
to $297,631 for the fiscal year ended March 31, 1997,
an increase of 17%. Revenue from the Personal Trust
segment's IRA Account servicing activities increased
to $95,331 for the fiscal year ended March 31, 1998
compared to $54,387 for the fiscal year ended March
31, 1998, an increase of 75%.
<PAGE>
At March 31, 1998, the Corporate Trust segment
serviced 6,503 IRA Accounts with an aggregate
value of approximately $117,000,000, and the
Personal Trust segment serviced 141 IRA Accounts
with an aggregate value of approximately $26,000,000.
The Personal Trust segment's trust income increased
to $279,903 for fiscal year ended March 31, 1998,
compared to $173,603 for the fiscal year ended March
31, 1997, an increase of 61%. This increase was
primarily due to an increase in the number of
accounts being serviced by this segment.
Interest income increased to $39,799 for the fiscal
year ended March 31, 1998, compared to $34,033 for
the fiscal year ended March 31, 1997, an increase
of 17%. The increase was primarily attributable to
a larger balance held for investment.
The Corporate Trust segment's general and
administrative expenses increased in the
aggregate to $866,149 for the fiscal year
ended March 31, 1998, compared to $685,900
for the prior fiscal year, but remained constant
at 45% of segment revenues for the fiscal years
ended March 31, 1998, and March 31, 1997. The
Personal Trust segment's general and administrative
expenses increased in the aggregate to $327,116 for
the fiscal year ended March 31, 1998, compared to
$193,792 for the prior fiscal year, and increased
to 87% of segment revenues for the fiscal year
ended March 31, 1998, compared to 85% of segment
revenues in the prior fiscal year.
<PAGE>
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 $2,100,527 on March 31, 1999. 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
as of December 31, 1997, December 31, 1998 and
December 31, 1999, respectively. At March 31,
1999, $337,551 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
hand and other assets of the Company. Net cash
provided by operating activities was $562,980 for
the year ended March 31, 1999. Net cash used in
investing activities was $381,299 for the year
ended March 31, 1999, resulting primarily from
the purchase of property and equipment and an
increase in restricted cash.
The Company also believes that it will be able
to satisfy its working capital and capital
expenditure requirements for the foreseeable
future from existing cash balances, anticipated
cash flow from operating activities, and from
funds available under the Company's Master Note
with its former parent, Church Loans and Investments
Trust.
Accounting Matters
<PAGE>
In September 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 131: "Disclosures about Segments
of an Enterprise and Related Information" (SFAS No.
131), which became effective on April 1, 1998. SFAS
No. 131 establishes standards for the way that public
enterprises report information about operating segments
in annual financial statements and requires that those
enterprises report selected information about operating
segments in interim reports issued to stockholders.
The adoption of SFAS No. 131 did not have a material
impact on the Company.
In February 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 132: "Employer Disclosures about
Pensions and Other Postretirement Benefits"
(SFAS No. 132), which became effective on
April 1, 1998. SFAS No. 132 establishes standards
for the information that public enterprises
report in annual financial statements. The
adoption of SFAS No. 132 has not had a material
impact on the Company.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 133: "Accounting for Derivative
Instruments and "Hedging Activities" (SFAS No. 133),
which becomes effective for us April 1, 2001. We
believe the adoption of SFAS No. 133 will not have
a material impact on the Company.
<PAGE>
Risk Factors
The Company's Common Stock is not listed on
the Nasdaq Stock Market ("Nasdaq") or on any
national or regional securities exchange, and
there is no established trading market for
the Common Stock. The Company intends to pursue
the listing of its Common Stock on Nasdaq or
on a securities exchange in the future. Although
the Company believes that it meets the current
listing requirements of the Chicago Stock Exchange,
there may be no assurance that the Company will
qualify for such a listing in the future. Until
the Company is successful in procuring a listing
for its Common Stock on Nasdaq or a securities
exchange, the Company will attempt to match
stockholders who wish to sell Company Common
Stock with persons who wish to buy such Common
Stock. However, based on historical trading
volume in the Company's Common Stock, a stockholder
who owns a substantial number of shares of Company
Common Stock will likely be unable to sell his
shares in a short period of time should he or
she need or wish to do so.
Dependence on Key Personnel and Management of
Growth
The Company's future success will depend upon
the continued services of the Company's senior
management. The unexpected loss of the services
of any of the Company's senior management
personnel could have a material adverse effect
upon the Company. The Company has entered into
employment agreements with certain of its senior
management. See "Item 10: Executive Compensation-
Employment Agreements." The Company's future success
will depend in part upon its continuing ability
to attract and retain highly qualified personnel
to manage the future growth of the Company.
There may be no assurance that the Company will
be successful in attracting and retaining such
personnel. Further, the Company's ability to
manage growth successfully will require the
Company to continue to improve its management
and financial controls. Failure to do so could
have a material adverse effect upon the
Company's operating results and financial
condition.
<PAGE>
Non-Profit Bond Servicing Market; Ability
to Increase Bond Servicing Revenues
The Company's future financial performance
will depend in part upon the size of the
non-profit bond market. The market for bonds
issued by non-profit organizations is subject
to fluctuation due to a number of factors
beyond the control of the Company. Moreover,
there can be no assurance that the market
for bonds issued by non-profit organizations
will continue at or near the levels reached
in 1999 or 1998. The Company's ability to
continue to increase its market share will
be dependent upon a number of factors, including
the Company's ability to develop and maintain
relationships with the broker/dealers who are
primarily responsible for the sale of such
non-profit bonds. See "Dependence Upon Certain
Business Relationships." Revenues from the
Company's bond servicing activities accounted
for approximately 65% of the Company's total
revenues in fiscal 1999.
Market for Personal Trust Services; Ability
to Increase Personal Trust Service Revenues
<PAGE>
The Company intends for the foreseeable future
to limit the activities of its Personal Trust
segment to the metropolitan Phoenix area.
Therefore, the Company's future financial
performance will depend in part upon the size
of the market for personal trust services in
the metropolitan Phoenix area. Revenues from
such activities accounted for approximately
18% of the Company's total revenues in the
fiscal year ended March 31, 1999. The Company's
ability to continue to increase its revenues
from personal trust services will be dependent
upon a number of factors, including the Company's
ability to develop and maintain relationships
with professionals (such as attorneys and
accountants) who serve as a referral source
for these services and the Company's continuing
ability to service personal trust accounts.
See "Item 1: Business-Personal Trust Segment."
Dependence Upon Certain Business Relationships
The Company depends to a significant extent on
its relationships with broker/dealers who are
involved in the sale of bonds for non-profit
organizations to refer business to the Company
for bond servicing duties associated with such
offerings. As of March 31, 1999, all bond
programs for which the Company was serving
as trustee and paying agent had been originated
by 14 broker/dealers, and four of those
broker/dealers had originated bonds representing
approximately 78% of the aggregate principal
amount of all outstanding bonds for which the
Company was serving as trustee and paying
agent. The loss of or damage to any one of
these relationships, or the failure or inability
of any one of these broker/dealers to initiate
a similar number of non-profit bond offerings
in the future, could have a material adverse
impact on the Company and its operations. The
Company also depends, to a great extent, upon
its relationships with trust professionals
(such as attorneys and accountants) in the
metropolitan Phoenix area to refer opportunities
to the Company to provide personal trust
services. The loss of or damage to existing
relationships, or the Company's inability to
continue to develop additional relationships
with trust professionals, could have a material
adverse impact on the Company and its operations.
<PAGE>
Competition
The principal business segments in which
the Company is involved are highly competitive.
The Company currently competes with a number
of other trust companies to serve as trustee
and paying agent for non-profit bond
financings, including Reliance Trust
Company, Herring National Bank, American
Church Trust Company, and National City Bank.
The Company also competes with large banks
and other financial institutions for these
services. Other companies that do not currently
provide these services may enter this business.
The Company also competes with large banks and
other financial institutions, including other
trust companies, located in the metropolitan
Phoenix area for the business of providing
personal trust services. Other companies that
do not currently provide these services may
enter this business.
Regulation, Licensing and Supervision; Net
Capital Requirements
The Company's operations are subject to
ongoing regulation, supervision and licensing
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 by the
Department. Additionally, 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 $2.1
million at March 31, 1999. The foregoing
legislation also requires that the Company's
net capital meet certain liquidity requirements.
Specifically, $166,666, $333,332 and $500,000
of the Company's net capital must meet the
Department's definition of liquidity by July 20,
1997, July 20, 1998 and July 20, 1999,
respectively. At March 31, 1999, $337,551 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. The Company also believes
that it is currently in substantial compliance
with all applicable federal, state and local laws
and regulations.
<PAGE>
Change in Securities Laws Affecting Non-Profit
Bond Finance Market
Most bond offerings for which the Company serves
as trustee and/or paying agent are made in reliance
upon an exemption from registration provided by
Section 3(a)(4) of the Securities Act of 1933, as
amended, and similar exemptions from registration
provided for under applicable state securities
laws. In the event such federal and/or state
exemptions become unavailable for any reason,
the Company believes that the market for
non-profit bond financings would be materially
and adversely affected due primarily to the
increased costs associated with registration of
such bonds under federal and/or state laws.
The foregoing would have a material adverse impact
on the Company's fees generated from bond
servicing activities and, thus, the Company's
results of operations.
Common Stock Dividends
The Company has never paid dividends on its
Common Stock. The Company intends for the
foreseeable future to retain any earnings to
support the growth of the Company's business.
The Company therefore does not contemplate
paying cash dividends on its Common Stock in
the foreseeable future.
Year 2000
The Company recognizes the potential business
impacts related to the Year 2000 computer system
issue and is implementing a plan to assess and
improve the Company's state of readiness with
respect to such issues. The Year 2000 issue is
one where computer systems may recognize the
designation "00" as 1900 when it means 2000,
resulting in system failure or miscalculations.
<PAGE>
Commencing in 1997, the Company initiated a
comprehensive review of its core information
technology systems, which the Company is
dependent upon for the conduct of day to day
business operations, in order to determine the
adequacy of those systems in light of future
business requirements. Year 2000 readiness was
one of a variety of factors to be considered in
the review of core systems.
In recognition of the Year 2000 issue, in
September 1997, the Company began a
comprehensive review of all information
technology and non-information technology
systems used by the Company, computer hardware
and software products supplied to broker-dealers
by the Company, and computer hardware and
software products and components and other
equipment supplied to the Company by third
parties. Such review includes testing and
analysis of Company systems and inquiries
of third parties supplying information technology
and non-information technology systems,
computer hardware and software products and
components, and other equipment to the Company.
The Company has divided its Year 2000 review
into two phases. The first addresses the Company's
core information technology systems. The second
phase addresses non-core information technology
systems, non-information technology systems, and
products, components and equipment supplied to the
Company from third parties. In addition, the
Company will implement required Year 2000 upgrades
and replacements during the second phase. The
Company substantially completed the first phase
of its review in June 1998. The Company completed
the second phase in June 1999.
<PAGE>
In the first phase of its Year 2000 review, the
Company tested all software products currently provided
to broker-dealers, and determined that such products
were Year 2000 compliant. The Company also made
inquiries of all third parties supplying the Company
with computer hardware and software products and
received assurances that such products and components
are Year 2000 compliant. With respect to core
information technology, the Company made inquiries
of third parties supplying computer hardware and
software operating systems to the Company, and
received assurances that such hardware and software
systems were Year 2000 compliant.
The Company has not developed a "worst case"
scenario with respect to Year 2000 issues,
but instead has focused its resources on identifying
material, remediable problems and reducing
uncertainties generally through the Year 2000
review described above.
At this time, the Company has not developed Year
2000 contingency plans, other than the review
and remedial actions described above, and does
not intend to do so unless the Company believes
such plans are merited by the results of its
continuing Year 2000 review. The Company maintains
and deploys contingency plans designed to address
various other potential business interruptions.
These plans may be applicable to address the
interruption of support provided by third parties
resulting from their failure to be Year 2000
ready.
<PAGE>
If the Company or the third parties with which
it has relationships were to cease or not
successfully complete its or their Year 2000
remediation efforts, the Company would encounter
disruptions to its business that could have a
material adverse effect on its business, financial
position and results of operations. The Company
could be materially and adversely impacted by
widespread economic or financial market disruption
or by Year 2000 computer system failures at
third parties with which it has relationships.
The Company does not believe expenditures to
be Year 2000 compliant will be material, and
has expensed all costs associated with the Year
2000 remediation plan. However, there can be
no assurance that the ultimate cost to identify
and implement solutions to all Year 2000 problems
will not be material to the Company.
Item 7. Financial Statements.
The Company's audited financial statements,
containing balance sheets as of March 31,
1999 and 1998, and related statements of
earnings, stockholders' equity and cash flows
for each of the years in the three-year period
ended March 31, 1999, are set forth on the
following pages.
<PAGE>
COLONIAL TRUST COMPANY
Index to Financial Statements
Page
Independent Auditors' Report. . . . . . . . . . . . . . 26
Balance Sheets as of March 31, 1999,
and 1998 . . . . . . . . . . . . . . . . . . . . . . 27
Statements of Earnings for the years
ended March 31, 1999, 1998, and 1997 . . . . . . . . 28
Statements of Stockholder's Equity for
the years ended March 31, 1999, 1998,
and 1997 . . . . . . . . . . . . . . . . . . . . . . 29
Statements of Cash Flows for the Years
ended March 31, 1999, 1998, and 1997 . . . . . . . . 30
Notes to Financial Statements . . . . . . . . . . . . . 31
Independent Auditors' Report
The Board of Directors
Colonial Trust Company:
<PAGE>
We have audited the accompanying balance sheets of Colonial
Trust Company (Company) as of March 31, 1999 and 1998, and
the related statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period
ended March 31, 1999. 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, 1999
and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended
March 31, 1999 in conformity with generally accepted
accounting principles.
/s/KPMG LLP
Phoenix, Arizona
May 20, 1999
<PAGE>
COLONIAL TRUST COMPANY
Balance Sheets
March 31, 1999 and 1998
Assets 1999 1998
Cash and cash equivalents $ 175,256 28,475
Receivables 518,395 390,758
Note receivable 419,084 389,489
Property and equipment, net 811,696 712,482
Excess of cost over fair
value acquired, net 141,25 153,420
Restricted cash 337,551 168,206
Other assets 106,007 105,449
$ 2,509,239 1,948,279
Liabilities and Stockholders' Equity
Accounts payable
and accrued liabilities $ 280,464 132,375
Income taxes payable 107,953 47,605
Deferred income taxes 20,295 11,830
408,712 191,810
<PAGE>
Stockholders' equity:
Common stock, no par value.
Authorized 25,000,000 shares;
issued and
outstanding 761,337 and 772,929 shares at March 31, 1999 and 1998,
respectively 555,177 554,942
Additional paid-in capital 505,347 505,347
Retained earnings 1,040,003 696,180
Total stockholders' equity 2,100,527 1,756,469
Commitments and contingencies (notes 4, 7 & 10)
$ 2,509,239 1,948,279
See accompanying notes to financial statements.
COLONIAL TRUST COMPANY
Statements of Earnings
Years ended March 31, 1999, 1998 and 1997
<PAGE>
1999 1998 1997
Revenue:
Bond servicing
income $ 2,006,221 1,582,917 1,226,591
IRA servicing
fees -
corporate 448,328 348,660 297,631
IRA servicing
fees -
personal 120,064 95,331 54,387
Trust income 445,569 279,903 173,603
Interest income 52,054 39,799 34,033
Total revenue 3,072,236 2,346,610 1,786,245
General and
administrative
expenses 2,432,984 1,984,485 1,522,020
Earnings before
income taxes 639,252 362,125 264,225
Income taxes 260,294 147,767 100,500
Net earnings $ 378,958 214,358 163,725
Basic earnings
per share $ 0.49 0.28 0.21
Diluted earnings
per share $ 0.49 0.27 0.21
Weighted average
shares outstanding
- basic 765,768 776,487 777,740
Weighted average
shares outstanding -
diluted 779,377 790,125 777,740
<PAGE>
See accompanying
notes to financial
statements.
<PAGE>
COLONIAL TRUST COMPANY
Statements of Stockholders' Equity
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized holding gains on securities available for sale
Additional Total stockholders'
paid-in capital equity
Common stock Retained earnings
Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balances an
March 31,
1996 777,740 $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 777,740 554,942 505,347 496,255 - 1,556,544
Common stock
acquired
and retired (4,811) - - (14,433) - (14,433)
Net earnings - - - 214,358 - 214,358
Balances at
March 31,
1998 772,929 554,942 505,347 696,180 - 1,756,469
Common stock
acquired
and retired (11,686) - - (35,135) - (35,135)
Issuance of common
stock under stock
option plan 94 235 - - - 235
Net earnings - - - 378,958 - 378,958
Balances
at March
31, 1999 761,337 $ 555,177 505,347 1,040,003 - 2,100,527
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COLONIAL TRUST COMPANY
Statements of Cash Flows
Years ended March 31, 1999, 1998 and 1997
1999 1998 1997
Cash flows from operating activities:
Net earnings $ 378,958 214,358 163,725
Adjustments to reconcile net
earnings to net
cash provided by operating activities:
Loss on sale of investments - - 1,702
Depreciation and amortization 95,315 82,506 70,475
Deferred income taxes 8,465 (7,599) (1,893)
Increase (decrease) in
cash resulting from
changes in:
Receivables (127,637) (240,530) (39,983)
Other assets (558) 60,994 (61,692)
Accounts payable
and accrued
liabilities 148,089 18,765 61,089
Income taxes payable 60,348 21,988 (10,216)
Net cash provided by
operating activities 562,980 150,482 183,207
Cash flows from investing
activities:
Additions to note receivable (29,595) (28,432) (25,513)
Proceeds from sale of
investments - - 462,579
Purchase of property
and equipment (182,359) (43,362) (165,485)
Increase in
restricted cash (169,345) (168,206) -
Net cash provided by (used
in)investing activities
(381,299) (240,000) 271,581
Cash flows from financing
activity:
Repayment of note payable - - (540,000)
Purchase and retirement
of common stock (35,135) (14,433) -
Proceeds from issuance
of common stock under
stock option plan 235 - -
Net cash used in financing
activities (34,900) (14,433) (540,000)
Increase (decrease) in cash
and cash equivalents
146,781 (103,951) (85,212)
Cash and cash
equivalents at beginning of year 28,475 132,426 217,638
Cash and cash equivalents
at end of year $ 175,256 28,475 132,426
Supplemental disclosures:
Interest paid $ - - 27,195
Income taxes paid $ 191,481 133,378 100,813
See accompanying notes to
financial statements.
<PAGE>
(1) Significant Accounting Policies
(a) 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 38 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,
1999, Colonial was serving as trustee for the benefit of
the bondholders on 466 bond offerings totaling approximately
$409,000,000 in original principal amount. The amount of
sold and unmatured bonds total approximately $295,000,000
at March 31, 1999. Colonial also serves as a trustee of
8,143 self-directed individual retirement accounts for
certain bondholders or employees of religious organizations
totaling approximately $136,000,000 at March 31, 1999.
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 304 accounts with a fair market
value totaling approximately $61,000,000 at March 31, 1999.
Colonial also acts as custodian for self-directed IRA accounts.
Colonial held 198 accounts as custodian with a fair market
value of approximately $38,000,000 at March 31, 1999.
(b) Basis of Presentation
On September 24, 1998, the Company's shareholders approved
a one-for-ten reverse common stock split. All share amounts,
share prices and earnings per share have been retroactively
adjusted for all periods presented to reflect this reverse
common stock split.
(c) 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.
<PAGE>
(d) 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 broker-dealers to originate bond programs for which
Colonial serves as trustee. At March 31, 1999, approximately
78% of the total bond issues processed were originated by 4
broker-dealers. At March 31, 1998, approximately 70% of the
total bond issues processed were originated by 4 broker-dealers.
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.
<PAGE>
At March 31, 1999, 17% of Colonial's trust account assets
were held in trust for members of one family. The combined
trust accounts approximated 16% of Colonial's trust income
revenues. At March 31, 1998, 30% of Colonial's trust assets
were held in trust for members of one family. The combined
trust accounts approximated 21% of Colonial's trust income
revenues.
(e) Cash Equivalents 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, 1999 and 1998 consist primarily
of money market accounts which invest primarily in
short-term government securities.
Colonial places its cash in insured financial institutions
and United States government securities with original
maturities of three months or less. At March 31, 1999
and 1998, Colonial had no deposits at financial
institutions in excess of the FDIC insurance limit
of $100,000.
(f) 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. The Company had no
impaired notes receivable during fiscal 1999, 1998
and 1997.
<PAGE>
(g) 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 5 years. Colonial's building is depreciated
over 39.5 years using the straight-line method.
(h) Excess of Cost Over Fair Value Acquired (Goodwill)
Goodwill is amortized using the straight-line method over
15 years. Goodwill is carried net of accumulated
amortization of $41,580 and $29,410 at March 31, 1999
and 1998, respectively.
(i) 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.
(j) Computation of Earnings Per Common Share
Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution from
stock options, warrants and other common stock
equivalents. Diluted EPS reflects potential dilution
from the exercise or conversion of securities into
common stock or from other contracts to issue common stock.
<PAGE>
(K) Stock Option Plan
In accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, the Company measures
stock based compensation expense as the excess of the
market price at the grant date over the underlying
stock exercise price. In accordance with the provisions
of SFAS No. 123, Accounting for Stock-Based Compensation,
the Company provides pro forma net earnings and pro forma
earnings per share disclosures for employee stock option
grants as if the fair value of all stock-based awards
on the date of the grant was recognized as expense over
the vesting period.
(l) Impairment of Long-Lived Assets
Colonial reviews long-lived assets and certain
identifiable intangibles 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 undiscounted
net 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.
(m) Reclassifications
Certain reclassifications have been made to prior
year balances to conform to the current year
presentation.
(2) 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 at 1% less than the prime interest
rate and is unsecured. Amounts advanced to Church
Loans may be repaid and reborrowed.
<PAGE>
(3) Property and Equipment
Property and equipment consists of the following:
1999 1998
Land $ 157,241 157,241
Building 434,699 433,238
Furniture 142,573 111,210
Equipment 425,916 307,249
1,160,429 1,008,938
Less
accumulated
depreciation 348,733 296,456
$ 811,696 712,482
(4) Lease Commitments
During fiscal 1998, Colonial leased office space
and certain equipment under various non-cancelable
operating lease arrangements. As of March 31, 1998,
Colonial no longer leased office space. Rent expense
totaled $14,181 for 1998 and $17,507 for 1997.
(5) Income Taxes
Income taxes amounted to $260,294, $147,767 and
$100,500 for 1999, 1998 and 1997, respectively.
The actual income tax expense differs from "expected"
income taxes for those years (computed by applying the
U.S. federal corporate statutory income tax rate of
34% to earnings before income taxes) as follows:
<PAGE>
1999 1998 1997
Computed
"expected"
income taxes $ 217,346 123,123 89,837
State taxes
(net of
federal
income tax
benefit) 36,006 20,055 12,458
Other
items, net 6,942 4,589 (1,795)
$ 260,294 147,767 100,500
Effective
income tax
rate 40.7% 40.8% 38.0%
Components of income taxes consist of:
Current Deferred Total
1999:
Federal $199,234 6,506 205,740
State 52,595 1,959 54,554
$251,829 8,465 260,294
1998:
Federal $123,085 (5,705) 117,380
State 32,281 (1,894) 30,387
$155,366 (7,599) 147,767
1997:
Federal $83,026 (1,401) 81,625
State 19,367 (492) 18,875
$ 102,393 (1,893) 100,500
<PAGE>
The tax effects of temporary differences
that give rise to significant portions of
the deferred tax liabilities at March 31,
1999 and 1998 are presented below:
1999 1998
Deferred
tax liability
- --property
and equipment,
principally
due to differences
in depreciation $ 20,295 11,830
(6) Stock Option Plans
Colonial's shareholders approved Colonial's
Incentive Stock Option Plan for employees
of the Company (the ISOP) and Colonial's
Non-Employee Directors Stock Option Plan
(the Directors Plan) on April 25, 1996.
Pursuant to the ISOP, 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 ISOP 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
200,000 shares have been reserved for
issuance under the ISOP.
Pursuant to the Directors Plan, each
non-employee director received an option
to purchase 5,000 shares on the date the
Directors Plan was approved by Colonial's
stockholders and options to purchase 1,500
shares were 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 50,000 shares
have been reserved for issuance under the
Directors Plan.
<PAGE>
At March 31, 1999, there were 98,017 shares
available for grant under the ISOP Plan and
21,500 shares available for grant under the
Directors Plan. The per share weighted average
fair value of stock options granted during
1999, 1998 and 1997 was $.97, $.97 and $.81,
respectively, on the date of grant using the
Black Scholes Model with the following
weighted average assumptions: expected
dividend yield of 0%, volatility of 10%,
risk free interest rate of 6.5% and an expected
life of 6 years for 1999, 1998 and 1997.
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 for
the years ended March 31, 1999, 1998 and 1997:
1999 1998 1997
Net earnings:
As reported $ 378,958 $ 214,358 $ 163,725
Pro forma $ 368,255 $ 205,918 $ 160,619
Earnings
per share:
As reported
- basic $ .49 $ .28 $ .21
As reported
- - diluted $ .49 $ .27 $ .21
Pro forma
- - basic $ .48 $ .27 $ .21
Pro forma
- diluted $ .47 $ .26 $ .21
The full impact of calculating compensation cost
for stock options under SFAS No. 123 is not
reflected in the pro forma net earnings amounts
presented above because compensation cost is
reflected over the options' vesting period of six years.
A summary of the aforementioned stock option plans follows:
<PAGE>
<TABLE>
<CAPTION>
Year ended Year ended Year ended
March 31, March 31, Weighted Weighted
1998 1997 average average
Number of Weighted Number of exercise Number of exercise
shares average shares price share price
<S> <C> <C> <C> <C> <C> <C>
Balance at the
beginning
of the year 122,577 $2.67 81,829 $ 2.50 - $ -
Granted 8,000 3.00 40,748 3.00 81,829 2.50
Forfeited - - - - - -
Exercised (94) 2.50 - - - -
Balance at the
end of the year 130,483 $2.69 122,577 $2.67 81,82 $ 2.50
Exercisable at
the end of the
year 106,783 $2.69 80,577 $2.65 52,829 $2.50
</TABLE>
<PAGE>
(7) 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.
(a) Cash and Cash Equivalents
The carrying amount is assumed to be the fair value
because of the liquidity of these instruments.
(b) 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.
(c) 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, 1999 and 1998, the amounts that will
actually be realized or paid at settlement or maturity of
the instruments could be significantly different.
<PAGE>
(8) Net Earnings Per Share
A summary of the Company's basic and diluted earnings
per share are as follows:
Years ended March 31
1999 1998 1997
Net earnings $378,958 214,358 163,725
Basic EPS -
weighted average
shares outstanding 765,768 776,487 777,740
Basic earnings per share $.49 .28 .21
Basic EPS -
weighted average
shares outstanding 765,768 776,487 777,740
Effect of dilutive
securities - stock
options 13,609 13,638 -
Dilutive EPS - weighted
average shares outstanding 779,377 790,125 777,740
Diluted earnings per share $.49 .27 .21
(9) Business Segments
Operating results and other financial data are
presented for the principal business segments
of the Company as of and for the years ended
March 31, 1999, 1998 and 1997, respectively.
The Company has two distinct business segments
consisting of Corporate Trust services and Personal
Trust services.
In computing operating profit by business segment,
portions of administrative expenses and other items
not considered direct operating expenses were
considered to be in the Corporate and Other category.
Identifiable assets by business segment are those
assets used in each segment of Company operations.
<PAGE>
Corporate Trust Personal Trust Corporate & Other Total
March 31, 1999:
Service fee revenue $2,454,549 565,633 - 3,020,182
Interest revenue - - 52,054 52,054
2,454,549 565,633 52,054 3,072,236
Operating expenses:
General and
administrative 1,213,498 475,427 648,744 2,337,669
Depreciation
and amortization 43,887 8,035 43,393 95,315
1,257,385 483,462 692,137 2,432,984
Earnings (loss)
before taxes $1,197,164 82,171 (640,083) 639,252
Identifiable
assets $484,388 190,518 1,834,333 2,509,239
Capital
expenditures $104,646 5,805 71,908 182,359
March 31, 1998:
Service fee
revenue $1,931,577 375,234 - 2,306,811
Interest
revenue - - 39,799 39,799
1,931,577 375,234 39,799 2,346,610
Operating expenses:
General and
administrative 840,242 319,892 741,845 1,901,979
Depreciation
and amortization 25,907 7,224 49,375 82,506
866,149 327,116 791,220 1,984,485
Earnings (loss)
before taxes $1,065,428 48,118 (751,421) 362,125
Identifiable
assets $297,037 155,701 1,495,541 1,948,279
Capital
expenditures $30,142 8,864 4,356 43,362
<PAGE>
March 31, 1997:
Service fee
revenue $1,524,222 227,990 - 1,752,212
Interest
revenue - - 34,033 34,033
1,524,255 227,990 34,033 1,786,245
Operating expenses:
General and
administrative 665,323 189,529 596,693 1,451,545
Depreciation
and amortization 20,577 4,263 45,635 70,475
685,900 193,792 642,328 1,522,020
Earnings
before taxes $838,322 34,198 (608,295) 264,225
Identifiable
assets $1,524,211 179,989 - 1,715,200
Capital
expenditures $162,907 2,578 - 165,485
(10) Commitments and Contingencies
Colonial is subject to the maintenance of a minimum
capital requirement of $500,000 pursuant to State of
Arizona (the State) banking regulations of which $333,332
must be "liquid" (as defined by the State) as of March
31, 1999. To satisfy this requirement, Colonial owns
certificates of deposit held with banks totaling $337,551
at March 31, 1999. These assets are classified as restricted
cash in the accompanying balance sheets as of March 31, 1999.
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.
Item
<PAGE>
7.a Qualitative Risk
The Company does not have significant market
risk due to the fact that it doesn't have any
long-term debt and doesn't invest in derivatives.
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, 1999:
Name Position Age
Lynn R. Camp Chairman of the Board 62
and Director
Michael W. Borger Director 44
Gerald G. Morgan Director 43
John K. Johnson President and Chief 41
Executive Officer and
Director
Cecil E. Glovier Sr. Vice President 47
Secretary
Marvin D. Hoeflinger Vice President 56
Christopher J. Olson Vice President/Treasurer 33
Chief Financial Officer
A.R. Olson Vice President 63
All directors hold office until the next annual
meeting of stockholders 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.
<PAGE>
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 from 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.
<PAGE>
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. Mr. Johnson is employed pursuant
to the terms of an employment agreement with the
Company. See "Item 10-Executive Compensation
- - Employment Agreements" and Exhibit 10 (f) hereto.
Cecil E. Glovier has served as Senior Vice
President/Secretary of the Company since August
1996. He previously served as the Company's Vice
President/Secretary from November 1995 to August
1996. Prior to that time, he 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. Mr.
Glovier is employed pursuant to the terms of an
employment agreement with the Company. See
"Item 10 - Executive Compensation - Employment
Agreements" and Exhibit 10(g) hereto.
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 10 - Executive Compensation - Employment
Agreements" and Exhibit 10(e) hereto.
<PAGE>
Christopher J. Olson has served as Vice President/Treasurer
of the Company since November 1995, and as Chief Financial
Officer since April 1998. Prior to his employment with
the Company, he served as President of Camelback Trust
Company from January 1993 to November 1995.
A. R. Olson has served as Vice President of the Company
since January 1996. Prior to his employment with the
Company, 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.
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, 1999.
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 three executive
officers whose salaries, bonuses and other compensation
earned during the fiscal year ended March 31, 1999
exceeded $100,000:
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Name & Principal Fiscal Year Salary Bonus Securities
Posit Underlying
Option/SARS
(#)
John K. Johnson 1999 $85,833 $35,621 (a) 0
CEO-President 1998 $80,000 $19,444 (a) 0
1997 $80,000 $12,872 30,000 (a)
Cecil E.Glovier 1999 $72,000 $35,621 (b) 0
Sr. Vice
President 1998 $13,602 $19,444 (b) 15,000 (b)
1997 $26,649 $12,872 0
Marv Hoeflinger 1999 $65,000 $79,308 (c) 3,500 (c)
Vice
President 1998 $65,000 $13,602 (c) 3,500
1997 $65,000 $26,649 3,500
(a) On July 1, 1996, Mr. Johnson was granted an option to purchase
30,000 shares of Common Stock of the Company at an exercise price
of $2.50 per share. The option to purchase 15,000 of such shares
vested immediately upon grant. The option to purchase the remaining
15,000 shares vest in three equal installments of 5,000 each on
July 1, 1997, 1998 and 1999, respectively. The options have been
adjusted for the 10-for-1 reverse stock split, which occurred in
fiscal 1999. Bonus amount excludes $2,870 and $2,359 contributed
by the Company to the 401(k) account for Mr. Johnson for the fiscal
years ended March 31, 1999 and 1998, respectively.
(b) On August 11, 1997, Mr. Glovier was granted an option
to purchase 15,000 shares of Common Stock of the Company at
an exercise price of $2.50 per share. The option to
purchase shares vest in three increments of 5,000 each on
August 11, 1998, 1999 and 2000. The options have been adjusted
for the 10-for-1 reverse stock split, which occurred in fiscal
1999. Bonus amount excludes $2,638 and $2,178 contributed by the
Company to the 401(k) account for Mr. Glovier for the fiscal
years ended March 31, 1999 and 1998, respectively.
<PAGE>
(c) On January 1, 1997, 1998 and 1999 Mr. Hoeflinger
was granted options to purchase 3,500 shares of Common
Stock of the Company at exercise price equal to $3.00
per share. The option to purchase the shares vested
immediately. The options have been adjusted for the 10-for-1
reverse stock split, which occurred in fiscal 1999. Bonus
amount excludes $2,387 and $1,996 contributed by the Company
to the 401(k) account for Mr. Hoeflinger for the fiscal years
ended March 31, 1999 and 1998, respectively.
The following table sets forth certain information
concerning option grants during the Company's last
fiscal year to the Company's Named Executive Officer:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Name & Principal Number of Underlying Percent Exercise Date
Position Securities Options of Total or Base
Granted Options Price
Granted ($/sh)
to Employees
in Fiscal Year
John K. Johnson 0 0 N/A N/A
CEO-President
Cecil E. Glovier 0 0 N/A N/A
Sr. Vice President
Marv Hoeflinger 3,500 100 $3.00 1/1/99
Vice President
The following table sets forth certain information
concerning (a) stock option exercises during the
Company's last fiscal year by the Company's Named
Executive Officers, and (b) the value of
unexercised stock options held by the Named
Executive Officers at March 31, 1999:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Name &
Principal Shares Acquired (#) Value Realized ($)Securities
Options at FY-End
on Exercise Options at FY-End Unexercised In-the-Money
Unexercised Underlying
Position ($) Exercisable/
(#)Exercisable/ Unexercisable
Unexercisable
<S> <C> <C> <C> <C>
John K. Johnson 0 $0 25,000/5,000 $18,750/$3,750
CEO-President
Cecil E. Glovier 0 $0 5,000/10,000 $16,250/$32,500
Sr. Vice President
Marv Hoeflinger 0 $0 10,500/0 $34,125/$0
</TABLE>
<PAGE>
Employment Agreements
The Company has entered into employment
agreements with Mr. Johnson, the Company's
President, Mr. Glovier, the Company's Senior
Vice President, and Mr. Hoeflinger, the
Company's Vice President of Marketing.
Mr. Johnson's agreement had a three-year term
that originally ran through June 30, 1999.
Under the agreement, Mr. Johnson's base salary
is $80,000 per year. The agreement has been
extended through June 30, 2000 and will a
utomatically be extended for an additional
one-year term commencing July 1, 2000, unless
either the Company or Mr. Johnson notifies the
other at least sixty (60) days prior to the end
of the current term of the intention not to renew
the agreement. Mr. Johnson is also entitled to
an annual bonus each year in which the Company
generates after-tax net earnings, calculated
according to the following formula: (y) after-
tax 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, 1998. Such bonus, if any, is payable
100 days from the end of the Company's fiscal year.
The agreement also provided for 30,000 incentive
stock options with an exercise price of $2.50 per
share, a total of 15,000 of which vested immediately
upon grant. The remaining 15,000 options vest in three
equal installments of 5,000 each on July 1, 1997, 1998
and 1999, respectively. The agreement also contains
confidentiality and non-compete covenants.
<PAGE>
Under the agreement with Mr. Glovier, entered
into in August 1997, Mr. Glovier is paid a base
salary of $72,000 per year plus an annual bonus
in each fiscal year that the Company generates
after- tax net earnings (after payment of income
taxes) calculated according to the following formula:
(a) for before-tax net income of less than $100,000,
a bonus amount equal to five percent of the total
after-tax net income; (b)for before-tax net income
from $100,000 to $200,000, a bonus amount equal to
six percent of the total after-tax net income; (c)
for before-tax net income from $200,000 to $300,000,
a bonus amount equal to seven percent of the total
after-tax net income; and (d) for before-tax net income
over $300,000, a bonus amount equal to seven and
one-half percent of the total after-tax net income.
Such bonus, if any, shall be paid within 90 days from
the end of the Company's fiscal year. The agreement
also provided for 15,000 in incentive stock options
with an exercise price of $2.50 per share, which vest
in three equal installments of 5,000 each on August
11, 1998, 1999 and 2000, respectively. Mr. Glovier
is also entitled to health and other insurance benefits
on the same basis as the Company's other executive
officers. 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
also received an option to purchase 3,500 shares of
the Company's Common Stock on January 1, 1997
and an option to purchase a like number of shares
on January 1, 1998; the exercise price of the option
granted on January 1, 1997 was $2.50 per share, and
the exercise price of the option granted on January
1, 1998 was $3.00 per share. Mr. Hoeflinger is also
entitled to receive options to purchase an additional
3,500 shares of the Company's Common Stock on January
1, 1999 and on each successive January 1 thereafter
during the term of the agreement. The exercise price
on January 1, 1999 was $3.00 per share. The exercise
price for any options granted in the future will be
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.
<PAGE>
Directors' Compensation
The Company's non-employee directors were paid
$15,900 in cash as a group during the fiscal year
ended March 31, 1999 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 1,500 stock
options with an exercise price equal to the then-current
exercise price of the Company's Common Stock on the date
of grant. The exercise price of the options granted to
such directors during the fiscal year ended March 31,
1999 was $3.00 per share. 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, 1999, 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,
and by all persons known by the Company to own more
than 5% of the Company's issued and outstanding
Common Stock.
<PAGE>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Owner(1)of Class
Lynn R. Camp 27,734 shares 3.7%
3517 Tripp
Amarillo, Texas 79121
Michael W. Borger 21,697 shares 2.9%
1602 S. Travis
Amarillo, Texas 79102
Gerald G. Morgan, Jr. 14,330 shares 1.9%
4705 Olsen
Amarillo, Texas 79106
John K. Johnson(2) 40,976 shares 5.4%
3414 E. Clark Road
Phoenix, Arizona 85024
William and Sue Johnson (3)45,586 shares 6.0%
14001 Interstate 27
Amarillo, Texas 79119
Directors and Executive
Officers as a Group(4) 168,170 shares 22.2%
(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 758,832
shares of Common Stock outstanding on June 1, 1999.
(2) The total for Mr. Johnson includes 20,000 shares
of Common Stock subject to immediately exercisable
options, which have an exercise price of $2.50 per
share, and 5,000 shares of Common Stock subject to
options which vest and become exercisable on July
1, 1999, and which have an exercise price of $2.50
per share.
<PAGE>
(3) Includes 35,032 shares Amberwood, of which Mr.
and Mrs. Johnson , through trusts of which they are the
sole trustees, own all of the issued and outstanding shares
of capital stock of Amberwood. Mr. and Mrs. Johnson,
therefore, control the disposition of the shares owned
by Amberwood and may be deemed the beneficial owners of
such shares. Mr. and Mrs. Johnson are the parents of Mr.
John K. Johnson.
(4) The total for all directors and executive
officers as a group includes 58,500 shares subject
to unexercised options that are exercisable on June
1, 1999 or within 60 days thereafter.
The Company has no knowledge of any arrangement
which may result in a change of control of the
Company.
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 *
<PAGE>
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 John K. Johnson *****
(g) Employment Agreement with Cecil Glovier *****
* 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-KSB 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 on Form 10-KSB dated June
27, 1996.
***** Incorporated by reference to Exhibit No. 10 to
Registrant's Annual Report on Form 10-KSB dated
June 29, 1998.
(b) Reports on Form 8-K
None.
<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/ Christopher J. Olson
Christopher J. Olson
Chief Financial Officer
Date: June 29, 1999
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 29, 1999
Lynn R. Camp
/s/ Michael W. Borger Director June 29, 1999
Michael W. Borger
/s/ Gerald G. Morgan Director June 29, 1999
Gerald G. Morgan
/s/ John K. Johnson President and June 29, 1999
John K. Johnson Director
(Principal Executive
Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
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