EXHIBIT 99 - RISK FACTORS
There are various risks in purchasing our securities and investing in our
business, including those described below. You should carefully consider these
factors together with all other information included in this Form 10-QSB.
Lack of Liquidity of the Company's Common Stock
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 Company's Common Stock. The Company will continue to
attempt to match stockholders who wish to sell Company Common Stock with persons
who wish to buy such Common Stock. However, annual trading volume in the
Company's Common Stock has averaged only approximately 97,000 shares in the last
two years. Therefore, 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. 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, financial and operational controls. Failure
to do so could have a material adverse effect upon the Company's operating
results and financial condition.
Non-Profit Bond Servicing Market; Ability to Increase Bond Servicing Revenues
The Company's future financial performance will depend in significant 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 the last two fiscal years; the Company estimates that its
revenues from bond servicing activities will decrease in the fiscal year ending
March 31, 2002 compared to its revenues from such activities in the recently
completed fiscal year as a result of a decrease in the number and principal
amount of new bond offerings anticipated to be originated in the upcoming fiscal
year for which the Company will serve as trustee and paying agent. 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 58% of the Company's total revenues in the fiscal year ended March
31, 2001 and approximately 54% of the Company's total revenues in the fiscal
quarter ended June 30, 2001.
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Market for Personal Trust Services; Ability to Increase Personal Trust Service
Revenues
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 27% of the Company's total
revenues in the fiscal year ended March 31, 2001 and approximately 28% of the
Company's total revenues in the fiscal quarter ended June 30, 2001. 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.
Additionally, at March 31, 2001, ten percent of the Company's Personal Trust
account assets were held in trust for members of one family, and such accounts
accounted for eight percent of the Company's Personal Trust revenues in the
fiscal year ended March 31, 2001. Loss of such revenues could have a material
adverse effect on the Personal Trust segment and/or the Company's results of
operations.
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, 2001, all bond programs for
which the Company had served as trustee and paying agent had been originated by
twenty broker/dealers, and four of those broker/dealers had originated bonds
representing approximately 77% of the aggregate principal amount of all bonds
issued for which the Company served 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.
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 Trust Management, Inc. 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.
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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 Banking
Department. Under applicable rules and regulations of the Arizona Banking
Department, the Company files periodic reports with the Department and is
subject to periodic examinations by the Department. Additionally, under Arizona
law, the Company is required to maintain net capital of at least $500,000; the
Company's net capital was approximately $2.85 million at June 30, 2001. Arizona
law also requires that $500,000 of the Company's net capital must meet the
Department's liquidity requirements. At June 30, 2001, $522,134 of the Company's
net capital met the Department's liquidity requirements. Additional capital
requirements may be imposed upon the Company in the future as a result of
Arizona legislation which became effective on August 9, 2001. The Company is
also required to satisfy other requirements under Arizona law. Additionally, the
Arizona Banking Department retains broad discretion to suspend or revoke the
certificate of any trust company subject to its jurisdiction (including the
Company) upon the occurrence of certain events, including (i) the trust
company's violation of any applicable law, rule or order, (ii) the trust
company's failure to conduct business in a safe, sound and lawful manner, or
(iii) upon the occurrence of any other event set forth in Arizona Revised
Statutes Section 6-864. The Company is also required to comply with federal
rules and regulations in connection with the Company's service as trustee for
IRA Accounts. Failure to comply with applicable law could have a material
adverse effect on the Company's results of operations and financial condition
and could, in certain instances, affect the Company's certificate issued by the
Arizona Banking Department. Failure to maintain such a certificate would require
the Company to attempt to move its operations to another state, to discontinue
its operations, or to attempt to merge or effect another business combination.
Performance of Contractual Duties
In the performance of its duties as trustee and paying agent on bond offerings
of non-profit and other organizations, the Company is required to perform
certain duties under the trust indenture for such offering and/or the federal
Trust Indenture Act (15 U.S.C. ss. 77aaa et seq.) or the applicable state
version of such Act (if any). In the Company's capacity as trustee, such duties
include: receiving proceeds from the sale of the bonds; distributing such
proceeds according to the purposes of the bond offering; investing such proceeds
pending distribution; receiving periodic sinking fund payments by the bond
issuer; procuring a security interest in collateral from the bond issuer to
secure the issuer's bonds; perfecting such security interest; and, in the event
of default by a bond issuer, taking possession of and/or selling the collateral.
In the Company's capacity as paying agent, such duties include distributing
sinking fund payments to bondholders. Failure to perform such duties in the
manner required by the trust indenture or applicable law could cause the Company
to incur material liabilities, which in turn could have a material adverse
effect on the Company's results of operations and financial condition.
Bankruptcy of Stevens Financial Group
The Company is serving as indenture trustee under seven Trust Indentures issued
by Stevens Financial Group, a financial services firm headquartered in
Springfield, Missouri ("Stevens"). The Trust Indentures secure obligations of
Stevens under certain debt instruments designated as Time Certificates and Fixed
Rate Investments.
Stevens has defaulted on all of its outstanding Time Certificates and Fixed Rate
Investments, and on March 19, 2001 Stevens filed a Voluntary Petition under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Arizona (Case No. 01-03105-ECF-RTB) (the "Stevens
Bankruptcy Proceeding"). Based on information provided to the Company to date,
the aggregate unpaid principal amount of such debt instruments is approximately
$64 million, and accrued and unpaid interest through the date of the filing of
the Stevens Bankruptcy Proceeding is approximately $13.5 million.
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The Company has incurred costs and expenses of approximately $200,000 through
July 31, 2001 in connection with the Stevens Bankruptcy Proceeding. The Company
will continue to incur additional costs and expenses related to this matter for
the foreseeable future. Future costs and expenses may be material. The Company
may not be able to recover a portion or any of the costs it has incurred or
which it incurs in the future in the Stevens Bankruptcy Proceeding. In the event
the Company cannot recover the costs it has incurred and which it incurs in the
future in the Stevens Bankruptcy Proceeding, the Company's results of operations
for the fiscal year ending March 31, 2002 will be materially and adversely
affected, and the Company's results of operations for future periods and
financial condition could be materially and adversely affected.
Additionally, although no litigation is pending or has been threatened against
it arising from the Stevens Bankruptcy Proceeding, it is possible that one or
more holders of Time Certificates or Fixed Rate Investments could assert claims
against the Company. Such claims would result in additional costs and expenses
to the Company. The Company could also suffer damages in excess of applicable
insurance coverage limits as a result of such claims.
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.