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, 2004
                    ----------------------------------------


                 [ ] 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
--------------------------



<PAGE> 2



     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]
----------------


     Issuer's revenue for its most recent fiscal year: $4,447,257.


     Based on the average of the bid and asked prices of the Registrant's Common
Stock on  July 12, 2004 ($3.00), the aggregate  market value of the Common Stock
held by non-affiliates of the Registrant was $1,908,342 as of June 4, 2004.


     As of July 12, 2004, 760,843 shares of the  Registrant's  Common Stock were
outstanding.


<PAGE> 3



                                TABLE OF CONTENTS

                                                                         Page

PART I

           Item  1:  Description of Business                              4

           Item  2:  Description of Properties                           13

           Item  3:  Legal Proceedings                                   14

           Item  4:  Submission of Matters to a Vote of
                     Security Holders                                    14



PART II

           Item  5:  Market for Common Equity and Related
                     Stockholder Matters                                 14

           Item  6:  Management's Discussion and Analysis
                     or Plan of Operation                                15

           Item  7:  Financial Statements                                25

           Item  8:  Changes in and Disagreements with
                     Accountants on Accounting and
                     Financial Disclosure                                43

           Item  8a:  Controls and Procedures                            43



PART III

           Item  9:  Directors and Executive Officers of
                     the Registrant                                      44

           Item 10:  Executive Compensation                              47

           Item 11:  Security Ownership of Certain Beneficial
                     Owners and Management                               51


           Item 12:  Certain Relationships and Related
                     Transactions                                        52

           Item 13:  Exhibits, List and Reports on Form 8-K              52


           Item 14:  Principal Accountant Fees and Services              53


<PAGE> 4


                                     PART I


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 1933, 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, projections of revenues,  income
or loss,  estimates  of  capital  expenditures,  plans  for  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 and does not
intend 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 - Agreement to Sell  Corporate  Trust  Business" and "Agreement to Sell
Wealth  Management  Group  Business," 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.


           General

     Colonial Trust Company (the "Company" or "Colonial") 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.

<PAGE> 5


           Business Segments

The Company  currently  has two business  segments:  Corporate  Trust and Wealth
Management  Group(previously  named the Personal Trust division of the Company).
The Corporate Trust segment provides  services  including serving as trustee for
individual  retirement  accounts  ("IRA's")  and trustee for bond  offerings  of
churches and other non-profit organizations.  The Company presently is primarily
engaged in serving as trustee and paying agent on bond  programs of churches and
other non-profit organizations. From time to time, the Company serves as trustee
and/or paying agent on bond programs of for-profit  organizations.  However, the
Company's  Board of  Directors  adopted a policy on October 8, 2001  pursuant to
which the Company will not serve as indenture  trustee on  for-profit  issuances
without the unanimous consent of the Company's Trust & Investments Committee and
the Board of  Directors.  Since this  policy was  adopted,  the  Company has not
agreed  to serve as  indenture  trustee  on any new bond  issues  of  for-profit
entities.  Through its Wealth  Management  Group 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 Bank One's Premium  Commercial Money Market Accounts  according
to the  terms  of the  Company's  investment  policy  and the  applicable  trust
indenture.  In its capacity as paying agent, the Company also receives  periodic
sinking fund  payments  (payments of principal  and interest on the bonds by the
non-profit organizations,  typically made on a weekly basis) and 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> 6


     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 per  transaction  fee in  instances  in which the
Company serves as transfer agent.

     As of March 31,2004,  the Company had served as trustee and/or paying agent
and/or escrow agent for 923 bond offerings  totaling  approximately $861 million
in  original  principal  amount.  The  foregoing  includes  a  total  of 48 bond
offerings in original  principal amount of approximately $68 million  originated
in the fiscal year ended  March 31,  2004.  The  Company's  revenues  from these
activities represented approximately 39% of the Company's aggregate revenues for
the year ended March 31, 2004. See "Item 7-Management's  Discussion and Analysis
or Plan of Operation - Results of Operations  for the Years Ended March 31, 2004
and 2003."

     As of March 31, 2004, 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  originated bonds representing  approximately 82% of the
aggregate  principal  amount of all bonds issued for which the Company served as
trustee and paying  agent.  For the year ended March 31, 2004, 4  broker/dealers
originated 100% of the aggregate  principal  amount of all new bond issues.  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.


<PAGE> 7


           IRA Services

     The  Company  also serves as trustee  for IRA's.  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 un-invested
balance in each IRA Account.

     At March 31,  2004,  the Company  was serving as trustee for  approximately
9,714 IRA's with an aggregate value of approximately $195 million.  Revenue from
the  Company's  activities  in this area  represented  approximately  12% of the
Company's  aggregate  revenues  for the year  ended  March 31,  2004.  See "Item
7-Management's  Discussion  and  Analysis  or Plan of  Operation  -  Results  of
Operations for the Years Ended March 31, 2004 and 2003."

     The majority of the IRA's  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's. 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  and to a lesser  extent  through  marketing  efforts  directed  at
non-profit organizations.


           Wealth Management Group Segment
           -------------------------------

     The  Wealth  Management  Group  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's
and trustee for managed IRA's.  At March 31, 2004, the Wealth  Management  Group
segment served as trustee or agent for 591 trust, other accounts,  or investment
agency  accounts with a fair market value of  approximately  $441  million,  and
served as  custodian or trustee for  approximately  291 IRA's with a fair market
value of approximately $71 million.

<PAGE> 8

     The Wealth  Management  Group 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
monthly  basis to  individual  accounts  according  to the prior  month end fair
market value. The second fee structure relates to an annual minimum fee that was
established to cover the maintenance of fiduciary  assets Colonial holds in both
trust and self-directed IRA's. Minimum fees are assessed monthly based on 1/12th
of the published annual minimum.

     The Wealth  Management  Group segment  terminated its  investment  advisory
agreement on April 30, 2004 with Hackett Investment  Advisors,  Inc. ("HIA"), an
investment advisor located in Scottsdale,  Arizona.  Pursuant to this agreement,
HIA had  served  as  investment  advisor  to the  Company  on a  portion  of the
investment accounts of the Wealth Management Group segment. HIA further referred
to the Wealth  Management Group segment all business  opportunities for which an
independent corporate fiduciary is necessary or appropriate.

     The Wealth  Management  Group segment was previously party to an investment
advisory  agreement  dated June 3, 1999 with Feldman  Securities  Group,  L.L.C.
("FSG"). This agreement was terminated on March 31, 2003 and FSG was replaced by
Meridian Investment Management (MIM).  Pursuant to this agreement,  this segment
designated  MIM,  and MIM  served as  investment  advisor,  on a portion  of the
designated  investment  accounts of the Wealth  Management  Group  segment.  The
Company paid MIM 22% of the fees collected for managed assets.  The initial term
of the agreement expired on March 31, 2004 and was not renewed.

     The Wealth  Management Group ("WMG") segment entered into an agreement with
Dubuque  Bank & Trust  Company  ("DBT")  on April  30,  2004.  Pursuant  to this
agreement,  DBT will provide  investment  advisory  services on a portion of the
investment  accounts of the WMG segment  and  replace  the  investment  advisory
agreements  WMG had with HIA and MIM.  The WMG segment pays DBT 30% of the gross
fees collected by the Company from the segment's investment  management accounts
receiving DBT advisory  services.  The Company is also a party to a Purchase and
Assumption  Agreement  dated March 26,  2004 with DBT and its Parent,  Heartland
Financial USA, Inc., as amended by an addendum dated April 26, 2004. Pursuant to
the foregoing,  the Company has agreed,  subject to the  satisfaction of certain
conditions, to sell to DBT and / or an affiliate of DBT substantially all of the
Wealth  Management  Group  segment.  See  "Agreements  to Sell  Corporate  Trust
Business and Wealth Management Businesses," immediately below.


<PAGE> 9


     The  profitability  of the  Wealth  Management  Group  segment  is  largely
dependent on the Company's ability to meet the needs of its market segment. Such
needs vary widely and are determined in large part by the terms of the governing
trust documents.  Where applicable,  the Wealth Management Group segment retains
legal,  investment,  tax and other  advisors  to fulfill  its  responsibilities.
Revenues from the Wealth Management Group segment represented  approximately 49%
of the Company's aggregate gross revenues for the year ended March 31, 2004. See
"-Growth  Plans" and "Item 6:  Management's  Discussion  and Analysis or Plan of
Operation - Results of Operations for the Years Ended March 31, 2004 and 2003."


     Agreements to Sell Corporate Trust and Wealth Management Group Businesses


     The Company has entered into a Purchase and Assumption Agreement with Happy
Bancshares, Inc. and its subsidiary,  Happy State Bank, dated December 30, 2003,
as amended by that First  Amendment to Purchase and Assumption  Agreement  dated
June 22, 2004, pursuant to which the Company agreed to sell substantially all of
the assets of its Corporate  Trust segment to Happy State Bank,  and Happy State
Bank agreed to assume certain  liabilities  associated  with the Corporate Trust
segment.  The Company has also entered into a Purchase and Assumption  Agreement
with Heartland Financial USA, Inc. and its subsidiaries,  Dubuque Bank and Trust
Company  ("DBT") and Arizona Bank & Trust Company  ("ABT") dated March 26, 2004,
as amended by that Addendum to Purchase and Assumption Agreement dated April 26,
2004,  pursuant to which the  Company  agreed to sell  substantially  all of the
assets of its Wealth  Management  Group  segment to DBT and/or ABT, and DBT, and
DBT agreed to assume certain  liabilities  associated with the Wealth Management
Group segment.  Both of the foregoing  sales are subject to the  satisfaction of
certain conditions,  including approval of the Company's shareholders. See "Item
7 -  Management's  Discussion  and  Analysis or Plan of Operation - Agreement to
Sell Corporate Trust Business" and " - Agreement to Sell Wealth Management Group
Business."

     The Company's  Board of Directors  has also approved a Plan of  Liquidation
and Dissolution (the "Plan of Liquidation"), which would include a reverse stock
split  for  purposes  of  making  liquidating  distributions  to  the  Company's
shareholders.  Pursuant to the Plan of Liquidation,  the Company will distribute
to its  shareholders  the net  proceeds  from the  sale of all of the  Company's
property and assets that can be sold,  including the net proceeds from the sales
of the Company's  Corporate  Trust segment and the Company's  Wealth  Management
Group segment described above. The foregoing  distributions would be made net of
the Company's  expenses incurred in connection with the sale of its two business
segments, taxes associated with such transactions,  and expenses associated with
the  liquidation  of the Company and the wind-down of the Company's  operations.
The Plan of Liquidation is subject to the  satisfaction  of certain  conditions,
including without limitation, approval of the Company's shareholders of the Plan
of Liquidation  and approval of both the sale of the Corporate Trust segment and
the Wealth  Management  Group segment and the  subsequent  consummation  of both
sales  transactions.  In the  event  the Plan of  Liquidation  is  approved  and
consummated,  the  Company  intends  to file a Form 15 with the  Securities  and
Exchange  Commission  (the "SEC") and terminate its  obligation to file periodic
reports with the SEC. See "Item 7 - Management's Discussion and Analysis or Plan
of Operation - Agreement to Sell Corporate  Trust Business" and " - Agreement to
Sell Wealth Management Group Business."

     If the  Company's  shareholders  approve  the sale of the  Corporate  Trust
segment and the sale of the Wealth  Management  segment,  but do not approve the
Plan of  Liquidation,  we will attempt to  consummate  the sale of the Corporate
Trust  segment  and  the  Wealth   Management   segment  and  will  explore  the
alternatives  then  available  for the future of the  Company,  including  using
available cash to acquire other businesses or companies.

     If the  Company's  shareholders  approve  the sale of the  Corporate  Trust
segment,  but do not  approve  the sale of the Wealth  Management  segment,  the
Company will attempt to consummate  the sale of the Corporate  Trust segment and
will  explore  the  alternatives   then  available,   including   searching  for
alternative purchasers for the Company's Wealth Management business. The Company
may also choose to distribute  all or part of any net cash that it receives from
the  sale of the  Corporate  Trust  segment  in the  form of a  dividend  to its
shareholders.  If the  Company's  shareholders  approve  the sale of the  Wealth
Management segment,  but do not approve the sale of the Corporate Trust segment,
the Company will attempt to consummate the sale of the Wealth Management segment
and will  explore the  alternatives  then  available,  including  searching  for
alternative  purchasers for its Corporate Trust  business.  The Company may also
choose to distribute  all or part of any net cash that it receives from the sale
of the Wealth Management segment in the form of a dividend to its shareholders.

     If the  Company's  shareholders  do not  approve  the  sale  of the  Wealth
Management  segment,  the sale of the Corporate  Trust  segment,  or the Plan of
Liquidation, the Company will continue to operate its Corporate Trust and Wealth
Management businesses and explore the alternatives then available for the future
of the  Company,  including  searching  for  alternative  purchasers  for  those
businesses.  The  discussion  that follows  assumes that neither the sale of the
Company's  Corporate Trust segment nor the Company's Wealth  Management  segment
are  consummated,  that  the Plan of  Liquidation  and  Dissolution  is also not
consummated,  and that the Company will  continue to operate both its  Corporate
Trust segment and its Wealth Management segment.

     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 anticipates that its bond servicing revenues will decrease in the fiscal
year ending March 31, 2005 compared to its revenues from such  activities in the
fiscal year ended  March 31, 2004 due to 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 as well as a
continuing  high level of bond calls due to low interest rates and the increased
attractiveness  of traditional  loans and other  financings (as compared to bond
financings)  to  non-profit  entities  seeking  debt  financing.  See  "Item  6:
Management's  Discussion  and  Analysis  or  Plan  of  Operation  -  Results  of
Operations  for the Years Ended  March 31, 2004 and 2003." Due to the  increased
attractiveness  of  traditional  loans,  the Company will continue  pursuing the
necessary steps to allow it, directly or through an affiliate, to offer loans to
non-profit  entities that prefer  traditional  loan financing to bond financing.
There  may be no  assurance  that the  Company  will  provide  traditional  loan
financing at any time in the future.


     The Company  also intends to attempt to expand its IRA  servicing  business
through attempting to develop  relationships  with new broker/dealers  with whom
the Company has not  previously  had a  relationship.  There may be no assurance
that the Company will be  successful  in its efforts to increase  IRA  servicing
revenues.  See " Item  6:  Management's  Discussion  and  Analysis  or  Plan  of
Operation - Results of Operations for the Year Ended March 31, 2004 and 2003."

     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.  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 "  Item 6:  Management's
Discussion  and  Analysis or Plan of Operation - Results of  Operations  for the
Years Ended March 31, 2004 and 2003."

     The Wealth  Management  Group entered into an  affiliation  agreement  with
PlanMember Service Corporation of Carpinteria ("PSC"),  California, on March 11,
2003,  wherein the Wealth  Management Group and PlanMember  Service  Corporation
will cooperatively  work to develop mutual retirement plan service  arrangements
with sponsoring  employers in Colonial's Arizona market.  Colonial will serve as
the  directed  trustee in company  sponsored  401(k)  plans and PSC will provide
investment,  administrative,  and recordkeeping services. Management expects the
retirement plan services  revenue  component to become a significant  portion of
the earnings of the Wealth Management Group over the next three years,  although
the Company has only generated  approximately $27,000 in revenues in the current
fiscal year and there may be no assurance  what  revenues may be realized in the
future from these  services.  Staff resources have been  reallocated  within the
Wealth  Management  Group  segment  in order  to sell or  service  the  accounts
resulting from this affiliation during fiscal year 2005.

<PAGE> 10



     The foregoing  discussion entitled " Agreements to Sell Corporate Trust and
Wealth Management Group Businesses" contains  forward-looking  statements within
the meaning of Section 27A of the  Securities Act of 1933 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 successful or unsuccessful
sale of one or both of its current business segments,  the Company's  successful
or unsuccessful  consummation of the Plan of Liquidation  and  Dissolution;  the
continued  employment of key management;  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 of referrals  for the Company;  the
Company's  success  in  providing   traditional  loan  financing  to  non-profit
entities, should it commence such activities;  the continuation of the Company's
investment advisory agreement with DBT and its success in managing the trust and
IRA's for which they provide services; the Company's success in servicing 401(k)
accounts;  no material changes in existing laws, rules or regulations  affecting
the Company's operations;  the Company's successful performance of its duties as
trustee  and/or  paying agent on bond  offerings,  as trustee for IRA's,  and as
manager,  administrator  and custodian for trust and investment agency accounts;
competitive factors, such as increased competition for the Company's services in
one or more of the above business segments; the Company's ability to procure E&O
insurance with appropriate coverage levels and other terms; a change 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

     The Company's primary competitors in the non-profit bond servicing business
are Reliance Trust Company, Herring National Bank, American Church Trust Company
and Trust  Management  Inc. 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.  The Company is also competing  with  traditional  lenders,  who are
offering  traditional  loans to non-profit  entities at interest  rates and with
other terms that are competitive to those offered through bond financings.  Such
traditional  loans have had an adverse  impact on the revenues of the  Company's
Corporate Trust segment and are anticipated to negatively impact the revenues of
such segment in the foreseeable future.

<PAGE> 11


     Competition in the IRA servicing business is intense.  However, to date the
Company has  focused  its  efforts on  procuring  IRA  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,  Trust
Management  Inc.  and,  to a lesser  extent,  broker/dealers,  banks  and  other
financial  institutions,  investment advisors,  money management firms and other
trust companies,  many of which have  significantly  greater financial and other
resources than the Company.

     The Company  competes with the trust  departments of large banks (and other
financial  institutions)  and, to a lesser extent,  with other independent trust
companies for trust account and investment agency account business. Although the
Company has focused  its efforts on trust accounts, which are smaller than those
typically  serviced by large  banks,  increased  competition  by large banks for
these accounts and/or  increased  success by other  independent  trust companies
could have a material  adverse impact on the Company's  financial  condition and
results  of  operations.  The large  banks,  and some of the  independent  trust
companies located in the Phoenix area, have significantly  greater financial and
other resources than the Company.

           Regulation, Licensing and Supervision

     The Company's  operations are subject to ongoing regulation,  licensing and
supervision  under various  federal,  state and local  statutes,  ordinances and
regulations,  including but not limited to regulation by the Arizona  Department
of Banking.  Under applicable rules and regulations of the Arizona Department of
Banking,  the Company files periodic  reports with the Department and is subject
to periodic examinations by that Department.

     Under  Arizona  law,  the Company is required to maintain net capital of at
least $500,000; the Company's net capital was approximately  $2,800,000 on March
31, 2004.  Arizona law also requires that $500,000 of such net capital must meet
the  Department's  liquidity  requirements.  At March 31, 2004,  $506,242 of the
Company's net capital met the Department's liquidity  requirements.  The Company
has satisfied these liquidity  requirements and believes that it will be able to
maintain its  compliance  with these  requirements  from existing cash balances,
from anticipated cash flow from operating  activities,  and from funds available
under the Company's Master Demand Note with its former parent,  Church Loans and
Investments Trust.

     Under legislation which became effective on August 9, 2001 and to which the
Company  became  subject  on  December  31,  2002,  the  Company  may in certain
circumstances  be  required  to  maintain  additional  capital  in excess of the
capital requirements described immediately above. Specifically, the Company will
be required to have  additional  capital of $250,000  for every $750  million of
"non-discretionary  assets" and  additional  capital of $250,000  for every $250
million  of  "discretionary  assets."  The term  "non-discretionary  assets"  is
defined as "...  those  assets in which the trust  company  must obtain from the
customer,  broker or investment  advisor  specific  direction  and  instructions
regarding  both  investment  strategies  and  investment  executions."  The term
"discretionary  assets"  is  defined  as "...  those  assets  in which the trust
company has the  unilateral  authority to determine  investment  strategies  and
execute  investment  transactions  without seeking the concurrence,  approval or
authority from the customer or any other  external  party."  Additionally,  this
legislation  requires that any trust company whose most recent  composite rating
from the  Arizona  Banking  Superintendent  was "four" as defined in the revised
uniform  interagency trust rating system must maintain an additional $250,000 in
capital,  and that any trust company whose most recent composite rating from the
Arizona  Banking  Superintendent  was a "five" as  defined  in the above  rating
system  must  maintain  an  additional  $500,000  in  capital.  One-half  of any
additional capital required by such legislation must be "liquid capital."

<PAGE> 12


     The Company believes that  approximately $621 million of the funds which it
held in the ordinary course of business at March 31, 2004 would be classified as
"non-discretionary"  assets and approximately $126 million of the funds which it
held in the ordinary  course of business at March 31, 2004 would be described as
"discretionary" assets. The Company also does not believe that its discretionary
or its  non-discretionary  assets  will  grow in the  foreseeable  future to the
levels, that will require additional capital. However, there may be no assurance
that the Arizona Banking Department will agree with the Company's classification
of its assets as non-discretionary or discretionary,  and to date no regulations
or  interpretations  concerning these provisions have been issued by the Arizona
Banking Department.  Additionally, although the Company does not believe that it
is likely  to  receive a "four" or  "five"  composite  rating  from the  Arizona
Banking  Superintendent in the foreseeable future,  there may be no assurance in
this  regard.  The  Company  believes  that it  would  be able  to  procure  any
additional  capital that might be required in the foreseeable future as a result
of the above  requirements  from existing cash balances,  from  anticipated cash
flow from  operating  activities  or from funds  available  under the  Company's
Master Note with its former parent,  Church Loans & Investments Trust. See "Item
6:  Management's  Discussion  and  Analysis or Plan of  Operation-Liquidity  and
Capital Resources."


     In the event the Company is required to have additional capital,  including
additional liquid capital,  for one of the above purposes,  the Company believes
that this  requirement  can be satisfied from funds  available  under the Master
Demand Note, cash flow from operations,  collection of receivables or borrowings
secured by the Company's Corporate headquarters.

     Arizona law also  requires the Company to maintain a fidelity  bond against
dishonesty, fraud, theft, embezzlement and other similar insurable losses. Under
legislation,  which became  effective on August 9, 2001, this fidelity bond must
be in the  minimum  amount  of $2.4  million.  The  fidelity  bond  must also be
adequate in relation to the Company's potential  exposure.  The Company believes
that it has been in compliance with these requirements to date and will continue
to be in  compliance  with  these  requirements  in the  future,  including  the
fidelity bond requirements imposed by the new legislation.

     Arizona law also  requires  the Company to  maintain  errors and  omissions
insurance of at least $500,000. This insurance must also be adequate in relation
to the Company's potential exposure.  The Company maintains errors and omissions
insurance of $3,000,000. It was previously disclosed in the Company's 10-KSB for
the year ended March 31, 2003 "Regulation,  Licensing and Supervision", that the
Company's E&O insurance for the period  commencing on September 1, 2002 excluded
coverage for new claims  submitted by the Company  after  September 1, 2002 that
relate to the period prior to September 1, 2002.  The Company  renewed its E & O
insurance coverage effective  September 1, 2003 with full coverage of any claims
previously excluded under the prior year's coverage mentioned above.

<PAGE> 13


     In addition to the above requirements,  the Arizona Banking Department also
retains  broad  discretion  to suspend or revoke  the  certificate  of any trust
company  subject  to  its  jurisdiction   (including  the  Company)  in  certain
circumstances,  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.

     In the event the Company is unable to  maintain  its  certificate  with the
Arizona  Department  of Banking,  the Company could be forced to attempt to move
its operations to another state, to discontinue  its operations,  or to pursue a
merger or other business combination.


           Employees

     At March 31, 2004,  the Company  employed 47 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.




Item 2.    Description of Properties.

     The  Company  owns 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.  This  building is included in the
Corporate  Trust  assets  to  be  purchased  by  Happy  State  Bank.  See  "Item
6-Management's  Discussion and Analysis or Plan of  Operation-Agreement  to Sell
Corporate Trust Business."


<PAGE> 14

Item 3.    Legal Proceedings.

     The Company is a party to various legal proceedings arising in the ordinary
course of business. While it is not feasible to predict the ultimate disposition
of these matters, in the opinion of management their outcome,  with the possible
exception of the event mentioned below,  will not have a material adverse effect
on the financial condition or results of operations of the Company.

     Dorothy  Castenada,  as  Personal  Representative  of the Estate of Dorothy
Long, vs. Colonial Trust Company (PB 2002-000207).

     The  Company is a  defendant  in a lawsuit  filed in the  Arizona  Maricopa
County Superior Court, Probate Division,  by the personal  representative of the
Dorothy  Long  Trust  (the  "Trust"),  a trust for which the  Company  served as
trustee.  The personal  representative of the Trust has alleged that the Company
breached its duties as trustee in connection with the Trust.

     The Company filed a counter-petition against the personal representative of
the  Trust  and also  filed a  third-party  complaint  against  counsel  for the
personal representative at the time the allegedly-wrongful acts occurred. In its
Complaint,  the personal representative sought damages of approximately $200,000
against the Company,  representing the amount of loan fees incurred by the Trust
as a result of the  allegedly-wrongful  acts of the Company, plus (i) the return
by the Company of certain  trustee's  fees,  attorneys' fees and costs which the
Company  previously  received from the Trust, (ii) the payment by the Company of
costs and  attorneys'  fees incurred by the personal  representative,  and (iii)
pre-judgment interests on the above loan fees.

     A trial in the above matter took place on November 3-5, 2003. Following the
trial,  the Court  entered a final order of  judgment:  (a) that the Company and
counsel for the personal  representative had breached their respective fiduciary
duties  to the  Trust,  (b)  that  the  Company  and  counsel  for the  personal
representative  were each liable for fifty percent (50%) of the after-tax damage
suffered  by the Trust as a result of its  payment of the above loan fees,  plus
interest  through the date of payment of the judgment,  (c) that the Company was
liable for certain  attorney's  fees and costs  incurred in connection  with the
above litigation which had previously been paid from the Trust, and (d) ordering
that  Colonial be removed as Trustee for the Trust and replaced by a new trustee
identified by the Court.

     The Company paid a total of $254,556 to the Trust in March 2004 as a result
of the order of  judgment in the above  matter.  The Company has also paid legal
fees to its counsel of $44,406 in  connection  with this matter.  These sums are
reflected  as  general  and  administrative  expenses  in the  Company's  income
statement for the fiscal year ended March 31, 2004.

     Additionally, counsel for the personal representative has filed a notice of
appeal with  respect to the above order of  judgment.  The Company is  presently
unable to determine whether any additional costs will be incurred as a result of
the appeal.



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 July 7, 2004,  the  Company  had  approximately  1,694  stockholders  of
record.  There is no established  public trading market for the Company's Common
Stock, The Company has not paid any dividends in the last two fiscal years ended
March 31, 2004 and does not expect to pay dividends in the foreseeable future.



<PAGE> 15


     The high and low sales  prices for the  Company's  Common  Stock during the
years ended March 31, 2004 and March 31,  2003,  were $3.50 and $3.00 per share,
and $3.50 and $2.50 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

     The  following  discussion of the results of the  operations  and financial
condition  of the  Company  should  be read in  conjunction  with the  Company's
financial  statements  and notes  thereto  included  elsewhere  in this  report.
Historical  results and  relationships  among  accounts are not  necessarily  an
indication of trends in operating results for any future period.

Critical Accounting Policies

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management  to make a number  of  estimates  and  assumptions  that  affect  the
reported  amounts of assets and liabilities and disclosure of contingent  assets
and  liabilities  at the date of the financial  statements.  Such  estimates and
assumptions  affect the reported  amounts of revenues  and  expenses  during the
reporting  period.  On an ongoing  basis,  management  of the Company  evaluates
estimates and  assumptions  based upon  historical  experience and various other
factors and  circumstances.  The Company  believes its estimates and assumptions
are  reasonable in the  circumstances;  however,  actual results may differ from
these estimates under different future conditions.

     Management  believes  that  the  estimates  and  assumptions  that are most
important to the portrayal of the Company's  financial  condition and results of
operations,  in that they require  management's  most  difficult,  subjective or
complex judgments,  form the basis for the accounting policies deemed to be most
critical to the Company.  These critical  accounting  policies relate to revenue
recognition  and  contingencies  related to litigation.  The Company  recognizes
revenue when earned based on three fee  structures , which are discussed in note
1 of the Company's financial  statements.  Liability estimates for contingencies
related to litigation are determined  based on the probability of loss using the
best  information  available at each  reporting  date.  Developments  related to
changes in material  contingencies  are reviewed on an on-going basis, and serve
as the basis for changes in recorded liabilities, if any.

     Management  believes  estimates and  assumptions  related to these critical
accounting  policies are appropriate under the  circumstances.  However,  should
future events or occurrences result in unanticipated  consequences,  there could
be a material impact on our future financial condition or results of operations.



           Results of Operations for the Years Ended March 31, 2004 and 2003

Overview

     The  Company  had net  earnings of $.01 per share for the fiscal year ended
March 31,  2004,  compared to net  earnings of $.10 per share in the fiscal year
ended March 31, 2003.

     The Company's  Corporate Trust segment bond servicing revenues decreased to
$1,715,403 in the current fiscal year,  compared to $1,909,680 in the comparable
prior year, a decrease of 10%. This decrease was attributable in large part to a
significant  number of bond issuer  refinancings into traditional loans or other
financing  products  that do not  generate  fees for the  Company  (refinancings
exceeded new issues  generated in the current year by 89%, as compared to 32% in
the prior  year).  The  Company  anticipates  that the  foregoing  factor and an
anticipated  decrease in the number and principal  amount of new bond  offerings
for which the Company  will serve as trustee and paying agent in the next fiscal
year will  continue  to  negatively  impact  the  results of  operations  of its
Corporate Trust segment for at least the next fiscal year.

     The Company's Wealth  Management Group trust income increased to $1,836,324
in the current fiscal year, compared to $1,369,130 in the comparable prior year,
an increase of 34%.  However,  this  increase  was due in large part to the fact
that the Company  generated eleven months of revenues from one significant trust
relationship  (or  $529,064 in total) in the current  fiscal  year,  compared to
three months of revenues (or  $118,696 in total) from this  relationship  in the
prior fiscal year.  Moreover,  this trust  relationship  terminated  in February
2004,  and the Company will generate no revenues from this  relationship  in the
fiscal year ending March 31, 2005.  Additionally,  the performance of the Wealth
Management  Group segment in the current fiscal year was negatively  impacted by
the  Company's  payment of  approximately  $300,000  in  litigation  expenses in
connection  with a lawsuit  filed  against the Company and other  parties by the
personal representative of a former trust client.

              Corporate Trust             2004         2003  Percentage Increase
                                                                   (decrease)

Bond Servicing Revenue              $1,715,403   $1,909,680          (10%)
IRA Servicing Fees                     534,817      553,520          ( 3%)
General and Administrative Expenses  1,447,186    1,656,748          (13%)


          Wealth Management Group         2004         2003  Percentage Increase
                                                                   (decrease)

Trust Income                        $1,836,324   $1,369,130           34%
IRA Servicing Fees                     322,666      292,866           10%
General and Administrative Expenses  1,784,272    1,215,175           47%


Detailed Discussion

     The Company had net earnings of $7,219, or $.01 diluted earnings per share,
for the fiscal year ended March 31,  2004,  compared to net earnings of $75,644,
or $.10 diluted  earnings  per share,  for the fiscal year ended March 31, 2003.
The Company had total revenues of $4,447,257 for the fiscal year ended March 31,
2004,  compared to total  revenues of $4,161,886 for the fiscal year ended March
31, 2003, an increase of 7%.

<PAGE> 16


     The Corporate  Trust  segment's  revenue  decreased to  $2,250,220  for the
fiscal year ended March 31,  2004,  compared to  $2,463,200  for the fiscal year
ended March 31, 2003, a decrease of 9%. The Wealth  Management  Group  segment's
revenue  increased  to  $2,158,990  for the fiscal  year ended  March 31,  2004,
compared to $1,661,996  for the fiscal year ended March 31, 2003, an increase of
30%.

     The  Corporate  Trust  segment's  bond  servicing   revenue   decreased  to
$1,715,403 for the fiscal year ended March 31, 2004,  compared to $1,909,680 for
the fiscal year ended March 31,  2003,  a decrease of 10%.  The decrease in bond
servicing revenue was primarily  attributable to the following  factors.  First,
interest  earnings  on  investments  were  approximately  $98,000  less than the
previous year due to lower interest rates,  partially offset by generally higher
investment balances generating these earnings in the current year. The Company's
investment  balances  fluctuate  depending upon the number of new bond issuances
originated  in the period  approximately  12 months prior  thereto for which the
Company  serves as trustee and paying  agent.  The  Company's  generally  higher
investment  balances in the current year therefore  reflect a slight increase in
the number of new bond  issuances  in which the  Company  serves as trustee  and
paying agent that were originated in the current year,  compared to the previous
year. However, bond issuer refinancings into traditional loans or other products
that do not generate fees for the Company  continued to  negatively  impact bond
servicing  revenues.  The above  factors are expected to continue to  negatively
impact such revenues in the foreseeable future. These lower interest earnings on
investments   were  partially   offset  by   approximately   $46,000  of  higher
collections,  in the current  year as  compared  to the prior year,  of interest
income on receivables  which have arisen as a result of amounts advanced on bond
issues in  various  stages of  foreclosure.  Second,  bond  issuer  refinancings
mentioned  above  exceeded  new issues  generated in the current year by 89%, as
compared  to 32%  in the  prior  year.  This  reduction  in net  managed  issues
negatively  impacts the Company's volume of annual  maintenance fees, which were
approximately  $60,000  less in the current  year as compared to the prior year.
Third,  sinking fund late fee income was  approximately  $101,000  less than the
previous year due to a smaller number of collections of fees owed.

     The Company is serving as trustee and paying agent on 48 bond  offerings in
the original principal amount of approximately $68 million which were originated
in the fiscal year ended March 31,  2004,  compared to 39 bond  offerings in the
original  principal amount of approximately $66 million which were originated in
the fiscal year ended  March 31,  2003.  Additionally,  at March 31,  2004,  the
Company was serving as trustee and paying agent on 405 bond  offerings  totaling
approximately  $371 million in original principal amount; at March 31, 2003, the
Company was serving as trustee and paying agent on 480 bond  offerings  totaling
approximately $431 million in original principal amount. The Company anticipates
that its bond  servicing  revenues will decrease in the fiscal year ending March
31, 2005 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, although the magnitude
of such  decrease  will be dependent  upon the strength of the  non-profit  bond
market,  the  amount  of  market  share  which the  Company  is able to  garner,
competition from  traditional  lenders and other factors which are not presently
ascertainable.  The Company  anticipates  that its bond servicing  revenues will
also be  negatively  impacted  in the  next  fiscal  year by  refinancings  into
traditional  loans or other  products that do not generate fees for the Company;
in this  regard,  the Company  anticipates  that bond issuer  refinancings  will
exceed new issues in its next  fiscal  year,  although  the degree to which this
will occur is not presently ascertainable.



<PAGE> 17

     Revenue  from  the  Corporate  Trust  segment's  IRA  servicing  activities
decreased  to $534,817  for the fiscal year ended  March 31,  2004,  compared to
$553,520  for the fiscal  year ended March 31,  2003,  a decrease of 3%. The net
decrease in revenue from  Corporate  Trust segment IRA servicing  activities was
primarily due to a reduction in earnings caused by lower interest  rates,  which
more than offset the increase in investment  balances  generating these earnings
in the current year. Additionally, this decrease in revenue was partially offset
by higher  maintenance  fees generated by higher IRA account  volumes and higher
termination,  transfer  and  conversion  fees in the current year as compared to
last year.  Revenue from the Wealth  Management  Group  segment's  IRA servicing
activities  increased  to $322,666  for the fiscal  year ended  March 31,  2004,
compared to $292,866  for the fiscal year ended March 31,  2003,  an increase of
10%. Fees  increased in the current year primarily as a result of higher account
market values on which these fees are based.

     At March 31, 2004,  the Corporate  Trust segment was servicing  9,714 IRA's
with an aggregate value of approximately $195 million, and the Wealth Management
Group segment was servicing 291 IRA's with an aggregate  value of  approximately
$71 million. At March 31, 2003, the Corporate Trust segment was servicing 10,127
IRA's with an aggregate  value of  approximately  $184  million,  and the Wealth
Management  Group segment was servicing 293 accounts with an aggregate  value of
approximately $55 million.

     The Wealth  Management Group segment's trust income increased to $1,836,324
for the fiscal year ended March 31, 2004,  compared to $1,369,130 for the fiscal
year ended March 31,  2003,  an increase of 34%. At March 31,  2004,  the Wealth
Management  Group  segment  was  serving  as  trustee  or agent  for 591  trust,
investment accounts, or other accounts with a fair market value of approximately
$441 million. At March 31, 2003, the Wealth Management Group segment was serving
as trustee or agent for 650 trust, investment accounts, or other accounts with a
fair market  value of  approximately  $235  million.  The increase in the Wealth
Management Group segment's trust income was largely due to the earning of eleven
months of revenue, or $529,064 in total, in a new significant trust relationship
in the current fiscal year, as compared to three months of revenue,  or $118,696
in total,  for that trust  relationship  in the prior fiscal year.  It should be
noted,  however,  that this  significant  trust  relationship  was terminated in
February 2004. Because of such termination, the Company will realize no revenues
from this  relationship  in the fiscal year ending  March 31,  2005,  which will
likely have a material adverse impact on the Wealth Management  Group's revenues
and profitability in the upcoming fiscal year.


     Interest & Other  Income  increased  to $38,047  for the fiscal  year ended
March 31, 2004, compared to $36,690 for the fiscal year ended March 31, 2003, an
increase of 4%. The increase was primarily  attributable  to higher  balances in
the master note  receivable on which  interest was earned in the current year as
compared to the prior year.  These higher balances  resulted  primarily from the
investment of cash collected from the payoff of a number of receivables  related
to bond  issues  in  various  stages of  foreclosure,  as well as cash flow from
operations.

     The Corporate Trust segment's general and administrative expenses decreased
in the  aggregate  to  $1,447,186  for the  fiscal  year ended  March 31,  2004,
compared to  $1,656,748  for the fiscal year ended March 31, 2003, a decrease of
13%, and  decreased  to 64% of segment  revenues for the fiscal year ended March
31, 2004, compared to 67% of segment revenues in the fiscal year ended March 31,
2003.   This  decrease  was  largely   attributable   to  two  factors.   First,
approximately  $124,000  less in expenses  were  incurred in the current year as
compared to the prior year in connection with the Stevens bankruptcy  proceeding
and the litigation  filed against the Company related  thereto.  Pursuant to the
Settlement  Agreement,  Colonial  paid  $100,000 to the  Trustee,  and the other
settling  defendants  agreed to make payments to the Trustee in various amounts,
which  payments were funded in January 2003.  Second,  approximately  $86,000 of
previously  unidentified  trust account  reconciling items were expensed and the
write-off was finalized in the year ended March 31, 2003.

     The Wealth Management Group segment's general and  administrative  expenses
increased  in the  aggregate to  $1,784,272  for the fiscal year ended March 31,
2004,  compared  to  $1,215,175  for the fiscal year ended  March 31,  2003,  an
increase of 47%, and  increased  to 83% of segment  revenues for the fiscal year
ended March 31,  2004,  compared to 73% of segment  revenues for the fiscal year
ended March 31,  2003.  This  increase was  attributable  to the  following  two
factors.  First,  increased  investment  advisory  service  fees and  commission
expense  of  approximately  $99,000  and  $111,000  respectively,   due  to  the
approximately   full  year  of  service   provided  to  the  significant   trust
relationship  which commenced in January 2003,  compared to only three months of
service/expense in the prior year. Second,  approximately $300,000 in litigation
expense  associated  with  the  Dorothy  Long  lawsuit  (see  "Item  4  -  Legal
Proceedings" for a more detailed explanation) was incurred in the current fiscal
year with zero expense in the prior year.

     In addition to the foregoing,  the Company has incurred legal,  accounting,
tax and other fees and  expenses  of  approximately  $155,000 in the fiscal year
ended March 31, 2004 in  connection  with the  Company's  proposed  sales of its
Corporate Trust and Wealth  Management Group businesses and the proposed Plan of
Liquidation and Dissolution of the Company. The Company anticipates that it will
incur an  additional  $$170,000  -  $195,000  in costs  in  connection  with the
foregoing transactions in the fiscal year ending March 31, 2005. The Company has
accounted for such costs as deferred sales costs on the Company's March 31, 2004
balance sheet.  However,  if such sales transactions are not consummated and the
Plan of  Liquidation  and  Dissolution  is not  effected,  the fees and expenses
associated with such transactions will be treated as general and  administrative
expenses which would have a material adverse impact on the Company's  results of
operations for the Company's fiscal year ended March 31, 2005.


     The Company's  effective  income tax rate was 41% for the fiscal year ended
March 31, 2004.

<PAGE> 18

     Results of Operations for the Years Ended March 31, 2003 and 2002

Overview

     The  Company  had net  earnings of $.10 per share for the fiscal year ended
March 31,  2003,  compared  to a net loss of $.11 per share for the fiscal  year
ended March 31, 2002.

     The Company's  Corporate Trust segment bond servicing revenues decreased to
$1,909,680 for the fiscal year ended March 31, 2003,  compared to $1,941,750 for
the  comparable  prior  year,  a  decrease  of  2%.  This  decrease  was  due in
significant  part to a decrease of $220,000  in earnings on  investments  in the
current  year,  which in turn was due in large part to fewer new bond  issuances
being  originated  for which the Company serves as trustee and paying agent (due
to  the   Company's   loss  of  market  share  for  such  services  and  to  the
attractiveness  of traditional  loans and other financings which do not generate
fees for the  Company) and to an increase in  refinancings  by bond issuers into
traditional  loans or other  financing  products.  The Corporate Trust segment's
general and administrative  expenses decreased in the aggregate to $1,656,748 in
the fiscal year ended March 31, 2003,  compared to $1,750,689 in the  comparable
prior year, a decrease of 5%. Such decrease was largely attributable to $206,000
less in expenses incurred in the fiscal year ended March 31, 2003 as compared to
the prior year in connection with the bankruptcy of the Stevens  Financial Group
(for  which  the  Company  served  as  indenture  trustee  on a  series  of bond
offerings) and the litigation filed against the Company related thereto.

     The Company's Wealth  Management Group trust income increased to $1,369,130
in the fiscal year ended March 31, 2003, compared to $984,582 for the comparable
prior period, an increase of 39%.  However,  this increase was due in large part
to the fact that the Company  earned a full year's  revenues in one  significant
new trust  relationship  in the fiscal year ended March 31, 2003, as compared to
revenues for only a partial year from such account in the prior year, and to the
fact  that the  value of the  assets of a second  new  trust  account  increased
significantly  in the fiscal  year ended  March 31,  2003  compared to the prior
year.

               Corporate Trust            2003        2002   Percentage Increase
                                                                 (decrease)

Bond Servicing Revenue              $1,909,680  $1,941,750          (2%)
IRA Servicing Fees                     553,520     606,981          (9%)
General and Administrative Expenses  1,656,748   1,750,689          (5%)


           Wealth Management Group        2003        2002   Percentage Increase
                                                                 (decrease)

Trust Income                        $1,369,130    $984,582           39%
IRA Servicing Fees                     292,866     257,962           14%
General and Administrative Expenses  1,215,175   1,063,647           14%

Detailed Discussion

     The Company  had net  earnings of $75,644,  or $.10  diluted  earnings  per
share,  for the fiscal  year ended  March 31,  2003,  compared  to a net loss of
$82,759,  or $.11  diluted  loss per share,  for the fiscal year ended March 31,
2002.   The Company had total  revenue of  $4,161,886  for the fiscal year ended
March 31, 2003,  compared to total  revenues of  $3,865,501  for the fiscal year
ended March 31, 2002, an increase of 8%.

     The Corporate  Trust  segment's  revenue  decreased to  $2,463,200  for the
fiscal year ended March 31,  2003,  compared to  $2,548,731  for the fiscal year
ended March 31, 2002, a decrease of 3%. The Wealth  Management  Group  segment's
revenue  increased  to  $1,661,996  for the fiscal  year ended  March 31,  2003,
compared to $1,242,544  for the fiscal year ended March 31, 2002, an increase of
34%.

     The  Corporate  Trust  segment's  bond  servicing   revenue   decreased  to
$1,909,680 for the fiscal year ended March 31, 2003,  compared to $1,941,750 for
the fiscal year ended  March 31,  2002,  a decrease of 2%. The  decrease in bond
servicing revenue was primarily  attributable to the following  factors.  First,
interest  earnings on  investments  were  approximately  $220,000  less than the
previous  year  due to lower  interest  rates  and  generally  lower  investment
balances generating these earnings in the current year. The Company's investment
balances fluctuate depending upon the number of new bond issuances originated in
the period approximately 12 months prior thereto for which the Company serves as
trustee and paying agent. The Company's lower investment balances in the current
year therefore  reflect a reduction in the number of new bond issuances in which
the Company serves as trustee and paying agent that were originated in the prior
year,  compared  to  earlier  years.  The  reduction  in the  number of new bond
issuances  in the prior year was due to a loss of market share by the Company in
trustee  and  paying  agent  services  and  the  increased   attractiveness   of
traditional  loans and other  financings  (as  compared to bond  financings)  to
non-profit   entities   seeking  debt  financing.   Additionally,   bond  issuer
re-financings into traditional loans or other products that do not generate fees
for the Company  continued to negatively  impact bond  servicing  revenues.  The
above factors are expected to continue to negatively impact such revenues in the
foreseeable  future.  Second,  sinking  fund late fee income  was  approximately
$87,000  less than the  previous  year due to a smaller  number  of  payoffs  of
receivables  and/or  collections of fees owed, as well as a change in the policy
of  charging  late fees from each month the payment is  delinquent  to the first
month the payment is more than 30 days late.  The  following  factors  partially
offset this decrease in bond servicing revenue.  First, municipal bond servicing
fee income in the  current  year  increased  approximately  $67,000  compared to
income from such activities in the prior period due to the collection of fees on
two issues which are in default.  It is presently  uncertain whether future fees
on these issues will be collectible. Additionally,  approximately $26,000 of the
prior year's  municipal  bond  servicing fee income was classified in the Wealth
Management  Group segment.  Second,  approximately  $60,000 more past due annual
maintenance fee income was collected in the current year as compared to past due
fees collected in the prior year. Third, approximately $32,000 of fee income was
collected in the current year as additional  income  because  interest  rates on
earnings  were less than the  minimum of 4% allowed  for under the fee  schedule
within the  indentures  of Corporate  Trust bond issues.  No fees of this nature
were  recognized  in the previous  year.  These fees will  continue to be earned
while  interest  rates remain low.  Fourth,  approximately  $22,000 more in bond
printing  fee income was  generated  this year as compared to last year.  Fifth,
$30,000 in  miscellaneous  trust income was earned from the  restructuring  of a
bond  issue  in  the  current  year  as  compared  to  the  prior  year.  Sixth,
approximately $36,000 less in interest income earned on receivables,  related to
bond  issues in  various  stages of  default,  due to fewer  collections  in the
current  year as compared  with the  previous  fiscal  year.  Minor  differences
account for the remaining net decrease in bond servicing income.

     The Company is serving as trustee and paying agent on 39 bond  offerings in
the original principal amount of approximately $66 million which were originated
in the fiscal year ended March 31,  2003,  compared to 43 bond  offerings in the
original  principal amount of approximately $42 million which were originated in
the fiscal  year ended  March 31,  2002.  Additionally  at March 31,  2003,  the
Company was serving as trustee and paying agent on 480 bond  offerings  totaling
approximately  $431 million in original principal amount; at March 31, 2002, the
Company was serving as trustee and paying agent on 513 bond  offerings  totaling
approximately $452 million in original principal amount.

     Revenue  from  the  Corporate  Trust  segment's  IRA  servicing  activities
decreased  to $553,520  for the fiscal year ended  March 31,  2003,  compared to
$606,981  for the fiscal  year ended March 31,  2002,  a decrease of 9%. The net
decrease in revenue from  Corporate  Trust segment IRA servicing  activities was
primarily due to a reduction in earnings caused by lower interest  rates,  which
more than offset the increase in investment  balances  generating these earnings
in the current  year.  Revenue from the Wealth  Management  Group  segment's IRA
servicing  activities  increased to $292,866 for the fiscal year ended March 31,
2003, compared to $257,962 for the fiscal year ended March 31, 2002, an increase
of 14%.

<PAGE> 19

     At March 31, 2003, the Corporate  Trust segment was servicing  10,127 IRA's
with an aggregate value of approximately $184 million, and the Wealth Management
Group segment was servicing 293 IRA's with an aggregate  value of  approximately
$55 million.  At March 31, 2002, the Corporate Trust segment was servicing 9,899
IRA's with an aggregate  value of  approximately  $168  million,  and the Wealth
Management  Group segment was servicing 247 accounts with an aggregate  value of
approximately $50 million.

     The Wealth  Management Group segment's trust income increased to $1,369,130
for the fiscal year ended March 31,  2003,  compared to $984,582  for the fiscal
year ended March 31,  2002,  an increase of 39%. At March 31,  2003,  the Wealth
Management  Group  segment  was  serving  as  trustee  or agent  for 650  trust,
investment accounts, or other accounts with a fair market value of approximately
$235 million. At March 31, 2002, the Wealth Management Group segment was serving
as trustee or agent for 678 trust, investment accounts, or other accounts with a
fair market  value of  approximately  $125  million.  The increase in the Wealth
Management Group segment's trust income was due in part to the earning of a full
year's revenue in a new  significant  trust  relationship  in the current fiscal
year,  as compared to a partial  year's  revenue in the prior fiscal  year,  and
secondly due to an increase in the value of accounts of another new  significant
trust relationship, which more than offset a reduction in the number of accounts
serviced  by  the  segment.  In  particular,  the  first  additional  new  trust
relationship  commenced  in January  2002,  and the other  additional  new trust
relationship commenced in January 2003.

     Interest & Other  Income  decreased  to $36,690  for the fiscal  year ended
March 31, 2003,  compared to $74,226 for the fiscal year ended March 31, 2002, a
decrease of 51%. The decrease was  primarily  attributable  to reduced  interest
rates  on  investment  balances  in the  current  year  and a  one-time  systems
conversion fee  attributable  to a new registrar and  disbursing  agency account
occurring in the prior year,  partially  offset by larger  interest  earnings on
receivables collected in the current year.

     The Corporate Trust segment's general and administrative expenses decreased
in the  aggregate  to  $1,656,748  for the  fiscal  year ended  March 31,  2003,
compared to  $1,750,689  for the fiscal year ended March 31, 2002, a decrease of
5%, and decreased to 67% of segment revenues for the fiscal year ended March 31,
2003,  compared  to 69% of segment  revenues  in the fiscal year ended March 31,
2002. This decrease was largely  attributable to approximately  $206,000 less in
expenses  incurred  in the  current  year  as  compared  to the  prior  year  in
connection  with the Stevens  bankruptcy  proceeding  and the  litigation  filed
against the Company  related  thereto.  Pursuant  to the  Settlement  Agreement,
Colonial paid $100,000 to the Trustee,  and the other settling defendants agreed
to make payments to the Trustee in various  amounts,  which payments were funded
in January 2003.  Additionally,  the settling  plaintiffs and the other settling
defendants all released Colonial and the other settling  defendants from any and
all claims and  liabilities  relating  to Stevens or the  Adversary  Proceeding.
Stevens  (the  reorganized  debtor)  and  the  Stevens  Bankruptcy  Estate  also
indemnified  Colonial and the other settling defendants against any contribution
or  indemnity  claims  that may be brought by parties who are not a party to the
Settlement  Agreement.  The Order also  released any other  potential  claims by
third parties subject to the Court's jurisdiction against Colonial and the other
settling defendants.

     The Wealth Management Group segment's general and  administrative  expenses
increased  in the  aggregate to  $1,215,175  for the fiscal year ended March 31,
2003,  compared  to  $1,063,647  for the fiscal year ended  March 31,  2002,  an
increase of 14%, but  decreased  to 73% of segment  revenues for the fiscal year
ended March 31,  2003,  compared to 86% of segment  revenues for the fiscal year
ended March 31, 2002.  This  decrease was largely  attributable  to a relatively
smaller increase in Wealth  Management Group segment expenses as compared to the
increase  in  segment  revenues,  primarily  due to the  addition  of two  trust
relationships,  one  which  commenced  in  January  2002 and the  other of which
commenced in January 2003.

     The Company's  effective  income tax rate was 37% for the fiscal year ended
March 31, 2003


           Liquidity and Capital Resources


     Under  legislation  effective on July 20, 1996,  the Company is required to
maintain  net  capital of at least  $500,000;  the  Company's  net  capital  was
approximately  $2,800,000 on March 31, 2004.  Arizona law also requires that the
Company's  net  capital  meet  certain  liquidity  requirements.   Specifically,
$500,000  of such  net  capital  must  meet  the  Arizona  Banking  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 and which the Company  became subject to on December 31, 2002.
For further discussion of possible future additional capital  requirements,  see
"Item 1: Regulation,  Licensing and Supervision." At March 31, 2004, $506,242 of
the  Company's  net  capital  met the  Arizona  Banking  Department's  liquidity
requirements.

     The Company's  cash and cash  equivalents  decreased from $243,048 on March
31, 2003, to $114,132 on March 31, 2004, and the note receivable  increased from
$353,635 on March 31, 2003,  to $551,778 on March 31, 2004.  The decrease in the
cash  and  cash  equivalents  was  primarily  due  to  the  Company's  investing
activities  during the current year, where the Company's primary activity of net
additions to the master note receivable with the former parent, Church Loans and
Investments Trust, used approximately $198,000.  These funds came primarily from
cash on hand at the  beginning  of the  year and cash  generated  by  operations
during the current year. The Company's net property and equipment decreased from
$665,503 on March 31,  2003,  to $605,000 on March 31,  2004.  The  decrease was
primarily due to depreciation  of property and equipment  exceeding the purchase
of replacement computer equipment and software for employees.

     The Company's  proposed sales transactions and proposed Plan of Liquidation
and  Dissolution  have resulted in a significant  increase in the Company's cash
requirements  and are  anticipated  to result in  significantly  increased  cash
requirements  until such  transactions are consummated or terminated  (which are
anticipated  to occur in the  third  calendar  quarter  of  2004).  The  Company
incurred  $154,956 of such costs,  reflected  as  "deferred  sales costs" on the
Company's  March 31, 2004 balance sheet,  during the fiscal year ended March 31,
2004.  Additionally,  the Company's  ability to generate cash from operations is
subject  to  contingencies  and  uncertainties  described  in  "  -  Results  of
Operations  for the Years  Ended March 31, 2004 and 2003"  above.  However,  the
Company's  existing cash, cash anticipated to be generated from operations,  and
the existing  amount owed to the Company by Church Loans and  Investments  Trust
under the Master Note  ($551,758  at March 31,  2004)  should be  sufficient  to
satisfy  all of the  Company's  capital  requirements  in order to  operate  the
Company in accordance with its business plan for the  foreseeable  future should
the proposed sales  transactions  and Plan of Liquidation and Dissolution not be
consummated.  In the event such sales  transactions  and Plan of Liquidation and
Dissolution  are  consummated,  the  Company's  cash,  cash  anticipated  to  be
generated from  operations,  and existing amounts owed by Church Loans under the
Master Note will be sufficient to satisfy the Company's cash requirements  until
these transactions are consummated.


               Agreement to Sell Corporate Trust Division
               ------------------------------------------
     The Company has entered into a Purchase and Assumption Agreement with Happy
Bancshares,  Inc. and its subsidiary,  Happy State Bank as amended by that First
Amendment to Purchase and  Assumption  agreement  dated June 22, 2004  (formerly
known as First State Bank)  (collectively,  the "Agreement"),  pursuant to which
the Company agreed,  subject to the satisfaction of certain conditions described
in the Agreement, to sell to Happy State Bank substantially all of the assets of
its  Corporate  Trust  segment  and  certain  other  assets,  including  without
limitation (a) certain accrued fees,  receivables,  prepaid  expenses and rights
under contracts ("Contracts") of Corporate Trust, (b) all equipment and personal
property  used in the conduct of the business of Corporate  Trust,  (c) the real
property and facilities located at 5336 N. 19th Avenue,  Phoenix,  Arizona which
comprise  the  Company's  corporate  headquarters,  and  (d)  substantially  all
furniture and fixtures located on the above-referenced  real estate. Happy State
Bank also agreed to assume certain liabilities  associated with Corporate Trust,
including  without  limitation  (i) Corporate  Trust's  accrued  expenses,  (ii)
certain  liabilities  and  obligations  with respect to the  Contracts,  (iii) a
prorated portion of the real estate taxes  attributable to the real estate being
purchased,  and (iv)  liabilities  under  certain  equipment  lease  agreements,
hardware  maintenance  agreements and related  agreements.  The parties  further
agreed that at the Closing  under the  Agreement,  Happy State Bank would be the
substitute  fiduciary  for the  Company  on each of the  Company's  accounts  of
Corporate  Trust and that,  effective as of such  Closing,  the Company would be
released  from all  fiduciary  duties with  respect to  Corporate  Trust.  It is
anticipated  that  Happy  State  Bank  would  operate  Corporate  Trust from the
Company's current headquarters following the Closing under the Agreement.

     The purchase price to be paid by First State at the Closing will be paid in
cash and will equal the sum of (i) $819,000,  representing the agreed-upon value
of the  above-referenced  real  estate,  (ii) the  aggregate  book  value of the
Corporate  Trust assets being  purchased,  less the book value of the  Corporate
Trust   liabilities  being  assumed,   at  the  Closing,   and  (iii)  $550,000,
representing the goodwill premium to be paid to the Company.

     Subject to credit checks,  Happy State Bank has agreed to offer employment,
effective as of the Closing, to all of the current employees of Corporate Trust,
including John K. Johnson,  Cecil Glovier and Ian Currie,  the President,  Chief
Operating  Officer  and  Controller/Treasurer,  respectively,  of  the  Company.
Messrs.  Johnson and Glovier have also executed  employment and  non-competition
agreements to be effective at the Closing.

     The  Agreement  is  subject  to the  approval  of the  shareholders  of the
Company,  receipt of all required regulatory approvals, the Company's receipt of
a fairness  opinion from its investment  banker,  Bank Advisory Group (which the
Company has received),  and certain other closing conditions.  It is anticipated
that the Company  will have a special  meeting of  stockholders  to consider the
sale of the Corporate  Trust business in the third calendar  quarter of 2004. If
such  approvals are received and all closing  conditions  are  satisfied,  it is
expected  that closing  under the  Agreement  would occur in the third  calendar
quarter of 2004. For more complete details of this  transaction,  please see the
Company's  Form 8-K's  filed with the  Securities  and  Exchange  Commission  on
January 28, 2004 and June 24, 2004.

         Agreement to Sell Wealth Management Group
         -----------------------------------------

     The Company has  entered  into a Purchase  and  Assumption  Agreement  with
Heartland Financial USA, Inc. ("Heartland") and its subsidiary, Dubuque Bank and
Trust Company  ("DB&T"),  as amended by that Addendum to Purchase and Assumption
Agreement dated as of April 26, 2004 between  Heartland,  DB&T, Arizona Bank and
Trust, a subsidiary of Heartland, and Colonial (collectively,  the "Agreement").
Pursuant to the  Agreement,  Colonial  agreed,  subject to the  satisfaction  of
certain conditions described in the Agreement, to transfer to AB&T substantially
all  of the  assets  of  its  Wealth  Management  Group  ("Wealth  Management"),
including  without  limitation (a) certain  accrued fees,  receivables,  prepaid
expenses  and  rights  under   fiduciary  and  agency  accounts  and  agreements
("Contracts") of Wealth Management, (b) all equipment and personal property used
in the conduct of the business of Wealth  Management,  (c) all  customer  lists,
customer leads, and other confidential and proprietary  information  relating to
Wealth Management, and (d) the goodwill related to Wealth Management.  DB&T also
agreed  to  assume  certain  liabilities   associated  with  Wealth  Management,
including without limitation (i) Wealth Management's accrued expenses during the
calendar month in which the Closing  occurs,  (ii) all  liabilities  relating to
servicing the fiduciary or agency  accounts after the Closing,  (iii) a prorated
portion  of the  personal  property  and  other  taxes  related  to  the  Wealth
Management  Assets  being  purchased,  and  (iv)  liabilities  under a  software
maintenance agreement utilized by Colonial in the Wealth Management business.

     The parties  further agreed that at the Closing under the  Agreement,  AB&T
would be the substitute  fiduciary for Colonial on each of Colonial's  fiduciary
and agency  accounts  that can be  assigned  to AB&T at the  Closing,  and that,
effective as of such  Closing,  Colonial  would be released  from all  fiduciary
duties with respect to such accounts.  Additionally, the parties agreed that, as
to fiduciary or agency accounts that have not been transferred as of the Closing
Date ("Incomplete Accounts"),  (i) AB&T will assume the administrative functions
as to all Incomplete  Accounts as of the Closing Date,  (ii) upon receipt of all
necessary  approvals to the transfer of an Incomplete  Account,  such Incomplete
Account  will be  transferred  to AB&T,  (iii) all fees  relating to  Incomplete
Accounts  will be paid to AB&T  beginning on the Closing Date of the  Agreement,
(iv) DB&T will pay to Colonial on the last day of each month the purchase  price
applicable to all Incomplete  Accounts which are  transferred to AB&T during the
previous  month,  and (v) in the  event  that all  Incomplete  Accounts  are not
transferred  to AB&T  within 120 days of the Closing  Date under the  Agreement,
Colonial may, at any time thereafter,  terminate the arrangement described above
as to Incomplete  Accounts and transfer the  applicable  Incomplete  Accounts to
another party. It is anticipated that AB&T would operate Wealth  Management from
the portion of  Colonial's  current  headquarters  located in  Phoenix,  Arizona
currently  utilized  by Wealth  Management  for a period  not to exceed one year
following the Closing under the Agreement.

     The  purchase  price to be paid by DB&T at the Closing will be paid in cash
and will equal the sum of (i) 1.88 times the amount of the annual recurring fees
during  the last 12  months  ending  on the last  day of the  month  immediately
preceding  the month in which the Closing  occurs that are  attributable  to the
fiduciary  and agency  accounts in  existence on January 20, 2004 for which AB&T
succeeds  Colonial at the  Closing;  (ii) 1.0 times the amount of the  estimated
annual  recurring  fees from the  fiduciary  and agency  accounts that come into
existence after January 20, 2004 for which AB&T succeeds Colonial; and (iii) the
book value of the equipment and personal  property,  prepaid  expenses and other
tangible assets being purchased;  provided,  however,  that the estimated annual
recurring fees referenced in "i" and "ii" immediately above will be prorated for
accounts  that have been in existence  for less than 12 months as of the Closing
under the Agreement.

     AB&T is expected  to offer  employment,  effective  as of the  Closing,  to
substantially all of the current employees of Wealth Management, including Bruce
Mitchell,  Colonial's  Vice  President  and  Manager  - Wealth  Management,  and
Patricia  Heitter,  a Vice President of Colonial.  Mr.  Mitchell and Ms. Heitter
also executed employment and  non-competition  agreements to be effective at the
Closing.

     The Agreement is subject to the approval of the  shareholders  of Colonial,
receipt of all required regulatory  approvals,  Colonial's receipt of a fairness
opinion from its  investment  banker,  Bank Advisory  Group (which  Colonial has
received),  Colonial's  transfer at the Closing of fiduciary and agency accounts
representing  at least 67% of all the  recurring  fees  received by Colonial for
such services, and certain other closing conditions.  It is anticipated that the
Company will have a special  meeting of stockholders to consider the sale of the
Wealth  Management Group business in the third calendar quarter of 2004. If such
approvals are received and all Closing conditions are satisfied,  it is expected
that Closing under the Agreement  would occur in the third quarter of 2004.  For
more complete  details of this  transaction,  please see the Company's  Form 8-K
filed with the Securities and Exchange Commission on April 28, 2004.


                  Plan of Liquidation and Dissolution of the Company
                  --------------------------------------------------

     The  Company's  Board of Directors has approved a Plan of  Liquidation  and
Dissolution  (the "Plan of  Liquidation"),  which would  include a reverse stock
split  for  purposes  of  making  liquidating   dissolutions  to  the  Company's
stockholders.  The Plan of Liquidation is subject to the prior  satisfaction  of
certain  conditions,  including  approval  of both  the  sale  of the  Company's
Corporate Trust business and the sale of the Company's  Wealth  Management Group
business by the Company's stockholders, the subsequent consummation of both such
sales,   and  the  approval  of  the  Plan  of   Liquidation  of  the  Company's
stockholders.  It is anticipated that the Company's  stockholders  will consider
the Plan of Liquidation at a special  meeting of  stockholders to be held in the
third calendar quarter of 2004.

     In the event the Plan of  Liquidation  is  consummated,  the  Company  will
distribute  pro  rata to its  stockholders,  in cash and an  interest  in a note
described below,  the net proceeds of the sale of all of the Company's  property
or assets that can be sold (including the assets sold in the Corporate Trust and
Wealth  Management sales  transactions  described above). It is anticipated that
the Company's initial  liquidating  distribution  would be made approximately 60
days  following the special  meeting of  stockholders  at which the sales of the
Corporate Trust and Wealth Management Group businesses were considered.

     At the  time  of the  Company's  initial  liquidating  distribution  to its
stockholders,  the Company will also grant each stockholder of the Company a pro
rata interest in a note instrument (the "Note"),  which gives each stockholder a
pro rata interest in any unused cash contained in the contingency  reserve which
will be  established  by the  Company  at the  time of the  initial  liquidating
distribution (the "Note Interest").  The contingency reserve will be established
in an amount determined by the Company to be sufficient to satisfy the Company's
actual and potential liabilities,  expenses and obligations.  Each stockholder's
Note Interest  will be  non-transferable  (except for transfers  upon death of a
stockholder  or by operation of law).  The Company  intends to distribute to its
stockholders  pro rata  pursuant to the Note the net balance of unused cash,  if
any, in the contingency  reserve remaining after the payment or discharge of all
of the Company's liabilities, expenses and obligations.

     The Plan of  Liquidation  also  contemplates  a  reverse  stock  split  for
purposes  of making  the pro rata  liquidating  distributions  to the  Company's
stockholders. Specifically, the Plan of Liquidation includes an amendment to the
Company's Articles of Incorporation to effect a reverse stock split of one share
of the Company's  common stock for every 35,032  shares of the Company's  common
stock that are issued and outstanding as of the reverse stock split.

     If the Plan of  Liquidation,  including the reverse  stock split  described
above,  is  consummated,  the Company  intends to file a Form 15 with the SEC to
terminate its public company status. Upon such termination, the Company will not
be subject to the reporting  requirements of the Securities Exchange Act of 1934
and will no longer  file  reports  on Form  10-QSB  or 10-KSB or other  periodic
reports with the SEC.

     There are material federal and state income tax consequences to the Company
and its stockholders from the Plan of Liquidation,  which the Company intends to
summarize in the Notice and Proxy  Statement that will be mailed to stockholders
in connection with such  stockholders'  consideration of the Plan of Liquidation
and the potential sale of the Company's  Corporate  Trust and Wealth  Management
Group businesses.

     A copy of the Plan of  Liquidation is attached as Exhibit 10-k to this Form
10-KSB.

     The foregoing  discussion  contains  forward-looking  statements within the
meaning of Section  27A of the  Securities  Act of 1933 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 successful or unsuccessful
sale of one or both of its current business segments,  the Company's  successful
or unsuccessful  consummation of the Plan of Liquidation  and  Dissolution;  the
continued  employment of key management;  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 of referrals  for the Company;  the
Company's  success  in  providing   traditional  loan  financing  to  non-profit
entities, should it commence such activities;  the continuation of the Company's
investment advisory agreement with DBT and its success in managing the trust and
IRA's for which they provide services; the Company's success in servicing 401(k)
accounts;  no material changes in existing laws, rules or regulations  affecting
the Company's operations;  the Company's successful performance of its duties as
trustee  and/or  paying agent on bond  offerings,  as trustee for IRA's,  and as
manager,  administrator  and custodian for trust and investment agency accounts;
competitive factors, such as increased competition for the Company's services in
one or more of the above business segments; the Company's ability to procure E&O
insurance with appropriate coverage levels and other terms; a change 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."



<PAGE> 20



                  Recent Accounting Pronouncements



     In May 2003, the FASB issued SFAS 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of both  Liabilities  and Equity."  SFAS 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability  (or an asset in some  circumstances).  SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the issuance
date of the Statement and still  existing at the beginning of the interim period
of adoption. Restatement is not permitted. The adoption of SFAS 150 did not have
a material impact upon the Company's financial  position,  cash flows or results
of operations.



           Risk Factors

     The Company is subject to a number of risks and  uncertainties.  Certain of
these risks and uncertainties  are a result of the Company's  agreements to sell
its Corporate  Trust and Wealth  Management  Group  businesses and the Company's
proposed  Plan  of  Liquidation  and  Dissolution.  See " -  Agreement  to  Sell
Corporate  Trust  Business,"  " -  Agreement  to Sell  Wealth  Management  Group
Business,"  and " - Plan of  Liquidation  and  Dissolution"  above.  Other risks
relate to the  Company and its  operations  exclusive  of the above  matters and
transactions.

Risks Related to the Corporate Trust Sale and the Wealth Management Group Sale

     If the sales of the Wealth  Management Group and Corporate Trust businesses
are not  completed as  expected,  the  Company's  business  could be  materially
disrupted.

     If the Company is unable to close the sale of its Wealth  Management  Group
or its  Corporate  Trust  businesses,  including  as a result of its  failure to
obtain  the  approval  of its  stockholders,  the  Company's  business  could be
materially  disrupted.  This  disruption  could be caused by confusion among its
customers, industry partners and employees as to the Company's future plans with
respect to its operating  businesses.  The Company has already announced both of
the sales of the Wealth  Management  Group and Corporate  Trust  businesses  by,
among other  things,  filing Form 8-K's with  respect to both of such sales with
the SEC.  Any failure to  consummate  either  transaction  could have a material
adverse effect on the Company's  sales and operating  results and its ability to
attract and retain customers,  industry partners and key personnel. In addition,
the Company will have to pay for its costs related to each of the  transactions,
such as legal,  accounting and financial  advisory fees,  even if such sales are
not completed.

     Because the  Company's  stockholders  will not receive  stock in either the
Corporate  Trust  Sale  or the  Wealth  Management  Group  Sale,  the  Company's
stockholders  will  not  participate  in  the  potential  future  growth  of the
Company's  Corporate Trust or Wealth  Management  Group businesses if such Sales
are consummated.

     The purchase prices in the Corporate Trust sale  transaction and the Wealth
Management  Group sale transaction  consist  entirely of cash. As a result,  the
Company's  stockholders  would not participate in the expected synergies between
our  Corporate  Trust  business  and Happy  State  Bank or  between  our  Wealth
Management  Group  business  and Dubuque Bank and Trust  Company/Arizona  Bank &
Trust if those transactions were consummated.  The Company's  stockholders would
in such  circumstances  also lose the opportunity to capitalize on the potential
future  growth of the  Company's  operating  businesses  and on their  potential
future  success  and  profits.   The  termination   fees  and   restrictions  on
solicitation  contained in the  Corporate  Trust Sale  Agreement  and the Wealth
Management Group Sale Agreement may discourage  other potential  purchasers from
trying to acquire either of the Company's operating businesses.

     The  Purchase  and  Sale  Agreement  for the  sale of our  Corporate  Trust
business  obligates  the  Company to pay Happy State Bank a  termination  fee of
$250,000 under certain  circumstances,  including  where the Company's  board of
directors  withdraws  its  recommendation  in favor of the sale of the Corporate
Trust  business  or where  the  Company  terminates  the  Corporate  Trust  Sale
Agreement to pursue a superior  offer.  The Purchase and Sale  Agreement for the
sale of the Company's Wealth Management Group business  obligates the Company to
pay Dubuque Bank and Trust an amount  equal to  Dubuque's  costs and expenses in
the  transaction  (not to exceed  $100,000)  in the event the Company or Dubuque
terminates such Sale Agreement because the Company's stockholders have failed to
approve such sale by September 30, 2004. An additional  fee of $200,000 would be
required  from the  Company if the  Company's  stockholders  do not  approve the
Agreement and within  eighteen  months  thereafter the Company sells Colonial or
the Wealth  Management  Group  business.  These  obligations  would make it more
costly for other  potential  purchasers  to acquire the Company or its operating
businesses.  The Sale  Agreement for the sale of the Company's  Corporate  Trust
business  also  generally  prohibits  the Company from  soliciting,  initiating,
encouraging or  facilitating  any proposals that may lead to a proposal or offer
for a merger or other  business  combination  with any  person  other than Happy
State Bank.

     The Company's  directors and executive officers may have interests that are
different  from,  or  in  addition  to,  those  of  the  Company's  stockholders
generally.

     Stockholders  should be aware of interests  of, and the benefits  available
to, the Company's  directors and executive  officers in connection with the sale
of the Corporate Trust and Wealth  Management  Group  businesses.  The Company's
directors  and  executive  officers  have  interests  in such  sales that are in
addition to, or different from, their interests as  stockholders.  If such sales
are consummated, or upon termination of employment following the consummation of
such sales,  certain of the Company's  officers are entitled to receive bonus or
other  payments.  Moreover,  certain of the  Company's  management  would become
employees of Happy State Bank or Arizona Bank & Trust  following  completion  of
such sales.  Additionally,  Gerald G. Morgan, a member of the Company's board of
directors, is a member of the law firm of Burdett,  Morgan,  Williamson & Boykin
LLP of  Amarillo,  Texas;  Mr. Tom  Burdett,  also a member of Burdett,  Morgan,
Williamson & Boykin,  is a member of the board of directors of Happy Bancshares,
Inc., the parent of Happy State Bank, and Burdett,  Morgan,  Williamson & Boykin
provides  legal  services  (unrelated  to the  Corporate  Trust  Sale)  to Happy
Bancshares, Inc. and Happy State Bank.

Risks Related to the Plan of Liquidation and Dissolution

     The Company's future plans would be uncertain if its stockholders failed to
approve the Plan of Liquidation and Dissolution.

     The Plan of Liquidation  and  Dissolution is dependent upon approval by the
Company's  stockholders holding at least a majority of the Company's outstanding
shares.  If the Company's  stockholders  approve the sale of the Corporate Trust
and the Wealth  Management  Group businesses but not the Plan of Liquidation and
Dissolution,  the Company  will not have any business  and will  consider  other
alternatives,  such as using its available  cash to acquire  other  companies or
businesses.

     Our  anticipated  timing  of the  liquidation  and  dissolution  may not be
achieved.

     If  the  Company's   stockholders  approve  the  Plan  of  Liquidation  and
Dissolution  and the sale of the  Corporate  Trust and Wealth  Management  Group
businesses are subsequently consummated, the Company intends to file articles of
dissolution  with the  Secretary  of State of the  State of  Arizona  after  the
closing of such sales.  Although the Company  anticipates  that it would make an
initial  distribution to stockholders within approximately 60 days following the
stockholders  meeting at which such matters are approved,  there are a number of
factors that could delay that anticipated timetable, including the following:

o    delays in consummating  the Corporate  Trust Sale or the Wealth  Management
     Sale;
o    legal, regulatory or administrative delays;
o    lawsuits or other claims asserted against the Company; and
o    delays in settling the Company's remaining obligations.

     The Company cannot determine with certainty the amount  stockholders  would
receive pursuant to the Plan of Liquidation.

     The  Company  cannot  determine  at this  time  the  amount  that  would be
distributed to its  stockholders  if the Plan of Liquidation  were  consummated.
This determination depends on a variety of factors,  including,  but not limited
to,  the  consummation  of the  sale  of the  Corporate  Trust  and  the  Wealth
Management  Group  businesses,  the actual  proceeds  received from those sales,
taxes the Company  would incur as a result of those sales,  expenses the Company
would incur in connection with those sales,  the amount required to settle known
and unknown debts and  liabilities  and other  contingent  liabilities,  the net
proceeds,  if any, from the sale of the Company's  remaining  assets,  and other
factors.  Examples of uncertainties  that could reduce the value of or eliminate
distributions to the Company's stockholders include unanticipated costs relating
to:

o    the defense,  satisfaction  or  settlement of lawsuits or other claims that
     may be made or threatened against the Company in the future; and
o    delays in the Company's  liquidation and dissolution,  including due to its
     inability to settle claims.

     As a result,  the Company  cannot  determine  with  certainty the amount of
distributions  its  stockholders  would  receive if the Plan of  Liquidation  is
consummated.

     The Company may not be able to settle all of its obligations to creditors.

     The Company has current and future obligations to creditors. As part of the
wind-down  process which would follow the sale of the Company's  businesses  and
the approval of the Plan of  Liquidation,  the Company  would  attempt to settle
those  obligations  with its creditors.  The Company cannot assure  stockholders
that it would be able to settle all of these  obligations  or that they could be
settled for the amount the Company has estimated for purposes of calculating the
likely  distribution  to  stockholders.  If the Company  were unable to reach an
agreement with a creditor relating to an obligation, that creditor could bring a
lawsuit against the Company.  Amounts  required to settle  obligations or defend
lawsuits in excess of the amounts  estimated  by the  Company  would  reduce the
amount of remaining capital available for distribution to stockholders  pursuant
to the Plan of Liquidation.

     The Company's  stockholders  may be liable to creditors for an amount up to
the amount  distributed by the Company if the Company's reserves for payments to
creditors are inadequate.

     If  the  Company's   stockholders  approve  the  Plan  of  Liquidation  and
Dissolution,  the sale of the Corporate  Trust and the Wealth  Management  Group
businesses are consummated,  and the Company's board of directors  determines to
proceed with the Company's liquidation and dissolution,  articles of dissolution
will be filed with the Arizona Corporation Commission dissolving Colonial. After
the dissolution becomes effective,  the Company would continue to exist only for
the purpose of prosecuting  and defending suits against the Company and enabling
the Company to close its business,  to dispose of its property, to discharge its
liabilities  and to  distribute  to the  Company's  stockholders  any  remaining
assets.  Under  applicable  Arizona law,  stockholders  could be held liable for
payment  to  the  Company's  creditors  up to the  amount  distributed  to  such
stockholder in the liquidation.  Accordingly, in such event, a stockholder could
be  required to return all  distributions  previously  made to such  stockholder
pursuant to the Plan of Liquidation  and could receive nothing under the Plan of
Liquidation.  Moreover,  in the event a  stockholder  has paid  taxes on amounts
previously received by the stockholder,  a repayment of all or a portion of such
amount  could  result  in  a  stockholder  incurring  a  net  tax  cost  if  the
stockholder's  repayment of an amount  previously  distributed  does not cause a
commensurate  reduction  in  taxes  payable.  The  Company  has not  engaged  an
appraisal  firm to render an opinion as to whether the Company would be rendered
insolvent  as a result of the initial  liquidating  distribution  or  subsequent
liquidating distributions. For these purposes, insolvency means that immediately
prior to making a distribution to the Company's  stockholders,  and after giving
effect to all such  distributions  (a) the fair saleable  value of the Company's
assets is less than its probable liabilities,  including disputed,  unliquidated
and contingent  liabilities or (b) the Company is not able to pay or will not be
able to pay its liabilities, as it projected to become due. Although the Company
anticipates  that its board would not authorize a  distribution  in excess of an
amount  that would  result in the  Company  being  insolvent  as a result of its
distributions,  the Company  cannot  assure  stockholders  that the  contingency
reserve established will be adequate to cover all expense and liabilities.

     It may become  difficult  or  impossible  for  stockholders  to trade their
shares.

     If the Plan of  Liquidation is approved,  the Company  expects to close its
stock transfer books and prohibit  transfers of record ownership of common stock
upon its  dissolution,  which would make it more  difficult or impossible  for a
stockholder  to sell shares of the Company and could result in a decrease in the
value of the Company's stock.

Other Risks Related to the Company and its Operations

           Lack of Liquidity of the Company's Common Stock


     The  Company's  Common  Stock is not  listed (or likely to be listed in the
foreseeable  future) 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 33,000 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.  See also Part II,  Item 6, and  other  parts of this
Form 10-KSB for a discussion of the Company entering into separate  purchase and
assumption  agreements for its two business  segments,  subject to regulator and
shareholder  approval,  which if  successful  would  result in  liquidation  and
dissolution of the Company.


<PAGE> 22


           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,  financial and operational controls. Failure
to do so could have a  material  adverse  effect  upon the  Company's  operating
results and financial condition.


           Adverse Long-Term Trends Related to Corporate Trust Business

     The Company estimates that its revenues from bond servicing activities will
decrease in the fiscal year ending March 31, 2005  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 and  refinancings by bond issuers for which the Company
serves as trustee  or paying  agent into  traditional  loans or other  financing
products.  Revenues from the Company's bond servicing  activities  accounted for
approximately 39% of the Company's total revenues in the fiscal year ended March
31, 2004.



           Market for Wealth Management Group;
           Ability to Increase Wealth Management Group Service Revenues

     The Company intends for the  foreseeable  future to limit the activities of
its Wealth Management Group 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 48% of the Company's
total revenues in the fiscal year ended March 31, 2004. The Company's ability to
continue to increase its revenues from Wealth  Management Group 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 Wealth Management accounts.  Loss of such revenues
could have a material  adverse  effect on the Wealth  Management  Group  segment
and/or the Company's results of operations.  Additionally,  the Company's Wealth
Management Group segment's results of operations for its fiscal year ended March
31, 2004 were  positively  impacted by the fact that the Company  earned  eleven
month's of revenues from a single trust relationship compared to three months of
revenues in the  previous  fiscal  year.  These  revenues  were  $529,064 in the
aggregate,  or 24.5% of the revenues of the Wealth Management Group for the year
ended March 31, 2004. This trust  relationship  was terminated in February 2004,
and the Company will  recognize no revenues from this  relationship  in the year
ending March 31, 2005. See "Item 1: Business  Segments-Wealth  Management  Group
Segment."




<PAGE> 23


           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, 2004,  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  82% of the aggregate  principal amount of all bonds
issued for which the Company  served as trustee and paying  agent.  For the year
ended  March 31, 2004,  three  broker-dealers  originated  99% of the  aggregate
principal amount of all new bond issuances.  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 Wealth  Management Group
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  lenders  who offer  traditional  loans to  non-profit  entities.
Additionally,  the  Company  competes  with  large  banks  and  other  financial
institutions,  including  other  trust  companies,  located in the  metropolitan
Phoenix area for the business of providing  Wealth  Management  Group  services.
Other  companies  that do not currently  provide  these  services may enter this
business.  Management  anticipates that the Wealth  Management Group will likely
face increased competition in the future from competitors who have significantly
greater financial and other resources than the Company does.


<PAGE> 24


           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  $2,800,000 at March 31, 2004.  Arizona
law also  requires  that  $500,000 of the  Company's  net capital  must meet the
Department's  liquidity  requirements.  At  March  31,  2004,  $506,242  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,  including
maintaining errors and omissions insurance which meets certain requirements. See
"Item 1: Business - Regulation,  Licensing and Supervision.".  Additionally, the
Arizona  Banking  Department  retains broad  discretion to suspend or revoke the
certificate  of  or  impose  operational  sanctions  or  restrictions  (such  as
requiring the Company to raise additional  capital) on 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.  See "Item 1:  Business -  Regulation,  Licensing and
Supervision."  Failure  to comply  with  applicable  laws  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.


<PAGE> 25


           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;  providing reports
to bondholders; 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.


           Costs of Compliance with Sarbanes-Oxley Act of 2002

     Congress enacted the  Sarbanes-Oxley Act in 2002, which imposes a number of
additional  significant and costly  obligations on companies which file periodic
reports with the Securities and Exchange  Commission,  such as its report on the
Company's  internal  control  over  financial  reporting.  Compliance  with  the
Sarbanes-Oxley  Act has resulted,  and will continue to result,  in  significant
additional costs to the Company and will distract the Company's  management from
its day-to-day activities.


           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  (including  without  limitation  changes in  federal  and/or  state
securities  laws),  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. See Part II, Item
6 of this Form 10-KSB for a discussion  regarding  the  purchase and  assumption
agreements  the  Company  has  entered  into  for the  sale of its two  business
segments.



Item 7.    Financial Statements.

     The Company's audited financial statements, containing balance sheets as of
March 31, 2004 and 2003,  and related  statements of  operations,  stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 2004, are set forth on the following pages.




<PAGE> 26


                             COLONIAL TRUST COMPANY
                          Index to Financial Statements

                                                                 Page

Report of Independent Registered Public Accounting Firm            27

Balance Sheets as of March 31, 2004, and 2003                      28

Statements of Operations for the years
       ended March 31, 2004, 2003, and 2002                        29

Statements of Stockholders' Equity for
       the years ended March 31, 2004, 2003, and 2002              30

Statements of Cash Flows for the Years
       ended March 31, 2004, 2003, and 2002                        31

Notes to Financial Statements                                      32



<PAGE> 27


                             Colonial Trust Company
             Report of Independent Registered Public Accounting Firm


The Board of Directors
Colonial Trust Company:


     We have audited the  accompanying  balance sheets of Colonial Trust Company
(Company)  as of  March  31,  2004  and  2003,  and the  related  statements  of
operations,  stockholders'  equity  and cash  flows for each of the years in the
three-year  period  ended March 31, 2004.  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 the  standards of the Public
Company Accounting Oversight Board (United States). 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, 2004 and 2003,  and the results of its  operations  and its cash flows
for  each  of the  years  in the  three-year  period  ended  March  31,  2004 in
conformity with accounting principles generally accepted in the United States of
America.


                                                             /s/KPMG LLP

Phoenix, Arizona
June 9, 2004


<PAGE> 28


                             COLONIAL TRUST COMPANY

                                 Balance Sheets

                             March 31, 2004 and 2003



        Assets                                  2004         2003
                                             ----------   ----------
Cash and cash equivalents                    $  114,132      243,048
Receivables                                     992,491    1,145,631
Note receivable                                 551,778      353,635
Deferred sale costs                             154,956            0
Income taxes receivable                          55,848        5,864
Property and equipment, net                     605,000      665,503
Excess of cost over fair value acquired, net    104,729      104,729
Restricted cash                                 506,242      506,377
Other assets                                    101,865       99,436
                                             ----------   ----------

                                             $3,187,041    3,124,223
                                             ==========   ==========


        Liabilities and Stockholders' Equity

Accounts payable and accrued liabilities     $  352,662      305,990
                                             ----------   ----------

                                                352,662      305,990
                                             ----------   ----------

Stockholders' equity:
     Common stock, no par value. Authorized
     25,000,000 shares; issued and outstanding
     760,843 and 757,884 shares at March 31,
     2004, and 2003, respectively               698,286      689,286
     Additional paid-in capital                 506,208      506,208
     Retained earnings                        1,629,885    1,622,739
                                             ----------   ----------

               Total stockholders' equity     2,834,379    2,818,233

Commitments and contingencies
(note 9)                                     ----------   ----------
                                             $3,187,041    3,124,223
                                             ==========   ==========

See accompanying notes to financial statements.


<PAGE> 29


                             COLONIAL TRUST COMPANY

                             Statements of Operations

                    Years ended March 31, 2004, 2003 and 2002



                                           2004         2003         2002
                                        ---------    ---------    ---------

Revenue:
     Bond servicing revenue             $1,715,403    1,909,680    1,941,750
     IRA servicing fees - corporate        534,817      553,520      606,981
     IRA servicing fees - wealth           322,666      292,866      257,962
     Trust income                        1,836,324    1,369,130      984,582
     Interest & other income                38,047       36,690       74,226
                                        ----------   ----------   ----------

            Total revenue                4,447,257    4,161,886    3,865,501

General and administrative expenses      4,435,022    4,041,145    3,989,466
                                        ----------   ----------   ----------

     Earnings (loss) before income taxes    12,235      120,741    (123,965)

     Income taxes (benefit)                  5,016       45,097     (41,206)
                                        ----------   ----------   ----------

     Net earnings (loss)                $    7,219       75,644     (82,759)
                                        ==========   ==========   ==========

Basic earnings (loss) per share         $     0.01         0.10       (0.11)
                                        ==========   ==========   ==========

Diluted earnings (loss) per share       $     0.01         0.10       (0.11)
                                        ==========   ==========   ==========

Weighted average shares outstanding -
    basic                                  758,720      743,239      730,865
                                        ==========   ==========   ==========

Weighted average shares outstanding -
    diluted                                760,488      757,322      730,865
                                        ==========   ==========   ==========




See accompanying notes to financial statements.


<PAGE> 30



                             COLONIAL TRUST COMPANY

                       Statements of Stockholders' Equity

                    Years ended March 31, 2004, 2003 and 2002


                                                                       Total
                               Common Stock      Additional            Stock-
                            ------------------   Paid-In   Retained    holders'
                            Shares    Amount     Capital   Earnings    Equity
                            --------  --------   --------  --------    ---------


Balances at March 31, 2001  720,843   $578,911   506,208   1,648,969   2,734,088


Common stock acquired and
  retired                   (3,616)          -         -    (12,659)    (12,659)

Issuance of common stock
  under stock option plan    12,500     35,375         -           -      35,375

Net loss                          -          -         -    (82,759)    (82,759)
                            -------   --------   -------  ----------   ---------

Balances at March 31, 2002  729,727   $614,286   506,208   1,553,551   2,674,045


Common stock acquired and
  retired                   (1,843)          -         -     (6,456)     (6,456)

Issuance of common stock
  under stock option plan    30,000     75,000         -           -      75,000

Net earnings                      -          -         -      75,644      75,644
                            -------   --------   -------   ---------   ---------

Balances at March 31, 2003  757,884   $689,286   506,208   1,622,739   2,818,233

Common stock acquired and
   retired                      (41)         -         -         (73)       (73)

Issuance of common stock
   under stock option plan    3,000      9,000         -           -       9,000

Net earnings                    -            -         -       7,219       7,219
                            -------   --------   -------   ---------   ---------
Balances at March 31, 2004  760,843   $698,286   506,208   1,629,885   2,834,379
                            =======   ========   =======   =========   =========




   See accompanying notes to financial statements.


<PAGE> 31



                             COLONIAL TRUST COMPANY
                            Statements of Cash Flows


                    Years ended March 31, 2004, 2003 and 2002

                                                    2004      2003        2002
                                                   -------   -------     -------

Cash flows from operating activities:

  Net earnings (loss)                              $  7,219    75,644   (82,759)
  Adjustments to reconcile net earnings (loss)
     to net cash provided by (used in) operating
     activities:
          Depreciation and amortization              87,710   114,958    150,636
             Loss on disposal of assets               7,045         -          -
          Deferred income taxes                           -     3,247   (13,422)
          Increase (decrease) in cash resulting
             from changes in:

              Receivables                           153,140 (292,375)   (29,145)
                    Deferred sale costs           (154,956)         -          -
              Income taxes receivable               49,984)   105,955   (89,283)
              Other assets                          (2,429)      (54)   (23,211)
              Accounts payable and
                 accrued liabilities                 46,672    89,014   (91,068)
                                                   --------   -------   --------

                      Net cash provided by (used in)
                      operating activities           94,417    96,389  (178,252)
                                                   --------   -------   --------

Cash flows from investing activities:

     Payment received on note receivable            254,000   130,000    300,000
     Additions to note receivable                 (452,143) (159,479)  (242,649)
     Purchase of property and equipment            (34,252)  (75,035)   (47,844)
     Decrease (increase) in restricted cash             135    16,037    (6,583)
                                                   --------  --------  ---------

                      Net cash provided by (used in)
                      Investing activities        (232,260)  (88,477)      2,924
                                                   --------  --------  ---------

Cash flows from financing activity:

     Purchase and retirement of common stock           (73)   (6,456)   (12,659)
     Proceeds from issuance of common stock under
       stock option plan                              9,000    75,000     35,375
                                                  ---------   -------  ---------

                      Net cash provided by
                      Financing activities            8,927    68,544     22,716
                                                  --------- ---------  ---------

                      Increase (decrease) in cash
                      and equivalents             (128,916)    76,456  (152,612)

Cash and cash equivalents at beginning of year      243,048   166,592    319,204
                                                  ---------  --------  ---------

Cash and cash equivalents at end of year           $114,132   243,048    166,592
                                                   ========  ========  =========
Supplemental disclosures:
     Income taxes paid                             $ 55,000    16,000     61,500
                                                   ========  ========  =========


See accompanying notes to financial statements.


<PAGE> 32


                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002





(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 has
entered into agreements to sell its Corporate Trust and Wealth  Management Group
businesses  and is  proposing  a Plan  Of  Liquidation  and  Dissolution  of the
Company, all of which will be considered at a special meeting of stockholders in
the third quarter of 2004.

     Colonial  serves as trustee  under various bond  indentures  for issuers of
bonds in 41 states and the  District of  Columbia.  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,  2004,  Colonial  was serving as
trustee  and/or  paying  agent  and/or  escrow  agent  for  the  benefit  of the
bondholders  on 405  bond  offerings  totaling  approximately  $371  million  in
original  principal  amount.  The  amount  of sold and  un-matured  bonds  total
approximately $252 million at March 31, 2004.  Colonial also serves as a trustee
of 9,714 self-directed  individual  retirement accounts for certain bondholders
or employees of religious  organizations  totaling approximately $195 million at
March 31, 2004.

     Through its Wealth  Management Group  (previously  named the Personal Trust
segment),  Colonial  also  serves  as  trustee  or agent,  providing  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  591  accounts   with  a  fair  market  value   totaling
approximately  $441 million at March 31, 2004.  Colonial  also acts as custodian
for self-directed  IRA accounts.  Colonial held 291 accounts as custodian with a
fair market value of approximately $71 million at March 31, 2004.


<PAGE> 33

                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002


     (b) Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management  to make a number  of  estimates  and  assumptions  that  affect  the
reported  amounts of assets and liabilities and disclosure of contingent  assets
and  liabilities  at the date of the financial  statements.  Such  estimates and
assumptions  affect the reported  amounts of revenues  and  expenses  during the
reporting  period.  On an ongoing basis,  we evaluate  estimates and assumptions
based upon  historical  experience and various other factors and  circumstances.
Actual  results  may  differ  from  these  estimates   under  different   future
conditions.

     (c) 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, 2004,  approximately  82% of the total bond issues  processed  were
originated  by  4  broker/dealers.   For  the  year  ended  March  31,  2004,  4
broker-dealers originated 100% of the aggregate principal amount of all new bond
issues.  For the year  ended  March  31,  2003,  100% of the total  bond  issues
processed were originated by 3 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 monthly  basis to
individual  accounts  according to the prior month end fair market value of each
account. The second fee structure relates to an annual minimum fee, which is set
up to cover the  maintenance  of fiduciary  assets  Colonial holds in both small
trusts and self-directed IRA accounts.  Minimum fees are assessed monthly, based
on 1/12th of the published annual minimum.

     At March 31, 2004,  approximately 4% of Colonial's  Wealth Management Group
account assets were held in trust for members of one family.  The combined trust
accounts  approximated 4% of Colonial's  Wealth  Management  Group revenues.  At
March 31, 2003, 47% of Colonial's  Wealth  Management  Group account assets were
held in trust for members of two  families.  The combined  trust  accounts  were
responsible  for   approximately  12%  of  Colonial's  Wealth  Management  Group
revenues.


<PAGE> 34

                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002


     (d) 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, 2004 and 2003 consist  primarily of
money market accounts,  which invest primarily in Bank One's premium  commercial
money market accounts.

     Colonial places its cash in insured  financial  institutions  with original
maturities of between three and sixty months.

     (e) 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  impairments of notes  receivable  during fiscal
2004, 2003 and 2002.

     (f) 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.

     (g) Excess of Cost Over Fair Value Acquired (Goodwill)

     Amortization of Goodwill ceased  effective April 1, 2002 in compliance with
the provisions of Financial  Accounting Standards Boards Statement 142. Goodwill
is carried net of prior years' accumulated  amortization of $78,101 at March 31,
2004 and 2003. Amortization expense for the years ended March 31, 2004, 2003 and
2002 were $0, $0 and $12,182, respectively.

     Effective  April 1,  2002 the  Company  complied  with  the  provisions  of
Statement 142 which required that goodwill and intangible assets with indefinite
useful lives no longer be  amortized,  but instead be tested for  impairment  at
least annually in accordance with the provisions of the statement.

     During the year ended March 31, 2004 management  evaluated the un-amortized
goodwill and concluded that there has been no impairment.

     As of the date of adoption,  the Company had  un-amortized  goodwill in the
amount of $104,729, which was subject to the transition provisions of Statements
141 and 142.

     The following  table sets forth  reported net earnings  (loss) and earnings
(loss) per share, as adjusted to exclude goodwill amortization expense:

                                                              Years Ended
                                                                March 31
                                                     2004       2003        2002
                                                     ----       ----        ----

       Net earnings (loss), as reported            $7,219    $75,644   $(82,760)

       Goodwill amortization                            -          -      12,182

       Net earnings (loss), as adjusted            $7,219    $75,644   $(70,578)

       Basic earnings (loss) per share
       as reported                                  $0.01      $0.10     $(0.11)
       Goodwill amortization                            -          -        0.01
       Basic earnings (loss) per share
       as adjusted                                  $0.01      $0.10     $(0.10)
       Diluted earnings  (loss) per share
       as reported                                  $0.01      $0.10     $(0.11)
       Goodwill amortization                            -          -        0.01
       Diluted earnings (loss) per share
       as adjusted                                  $0.01      $0.10     $(0.10)

     (h) 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  statements
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.

      (i) 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.  23,872 options were excluded from EPS  calculations  at March 31,
2002  because a net loss for the year then  ended  caused  these  options  to be
anti-dilutive.




<PAGE> 35


                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002

      (j) Stock Option Plan

     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  (loss) would have been reduced to the pro forma amount
indicated below for the years ended March 31, 2004, 2003 and 2002:


                                                  2004         2003         2002
                                            ----------   ----------   ----------

Net earnings (loss):
    As reported                              $   7,219    $  75,644   $ (82,759)

Compensation cost,
     Net of taxes                                2,166    $   3,999    $  10,072

                                            ----------   ----------  -----------
Pro forma net earnings (loss)                $   5,053    $  71,645   $ (92,831)
                                            ==========   ==========  ===========

Earnings (loss) per share:
    As reported - basic                      $     .01    $    .10    $    (.11)
                                            ==========  ===========  ===========
    As reported - diluted                    $     .01    $    .10    $    (.11)
                                           ===========  ===========  ===========

    Pro forma - basic                        $     .01    $    .10    $    (.13)
                                           ===========  ===========  ===========
    Pro forma - diluted                      $     .01    $    .09    $    (.13)
                                           ===========  ===========  ===========



     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 periods
ranging from zero to three years.


      (k) 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  exceeds 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.

      (l) Reclassifications

     Certain  reclassifications have been made to prior year balances to conform
to the current year presentation.

     (m) New Accounting Pronouncements


     In May 2003, the FASB issued SFAS 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of both  Liabilities  and Equity."  SFAS 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability  (or an asset in some  circumstances).  SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the issuance
date of the Statement and still  existing at the beginning of the interim period
of adoption. Restatement is not permitted. The adoption of SFAS 150 did not have
a material impact upon the Company financial position,  cash flows or results of
operations.

<PAGE> 36

                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002


(2) Note Receivable

     On  December  1,  1990,  Colonial  entered  into a Master  Note and  Letter
Agreement  with Church Loans and  Investments  Trust,  a real estate  investment
trust and Colonial's former parent  corporation.  The Master Note in the maximum
amount of $1 million 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.


(3) Property and Equipment

    Property and equipment consists of the following:


                                2004         2003
                         -----------  -----------


       Land               $  157,241      157,241
       Building              485,165      484,508
       Furniture             166,181      205,102
       Equipment             304,647      500,048
                         -----------  -----------

                           1,113,234    1,346,899
       Less accumulated
         depreciation        508,234      681,396
                         -----------  -----------

                          $  605,000      665,503
                         ===========  ===========



(4)      Income Taxes

     Income taxes (benefit) amounted to $5,016,  $45,097 and $(41,206) for 2004,
2003 and 2002,  respectively.  The actual  income taxes  differ 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:


                               2004         2003          2002
                         ----------  -----------   -----------

Computed "expected"
   income tax (benefit)   $   4,160       41,052      (42,148)
State tax (benefit)
   (net of federal
   income tax benefit)          563        3,529       (5,493)
Other items, net              1,480          516         6,435
Adjustment for us of
    lower federal rate      (7,698)            -             -
Meals and entertainment       6,511            -             -
                        -----------  -----------   -----------

                          $   5,016      45,097       (41,206)
                        ===========  ==========    ===========

Effective income tax rate       41%       37.4%          33.2%
                        ===========  ==========    ===========



<PAGE> 37


                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002


        Components of income taxes consist of:

                             Current     Deferred        Total
                         -----------  -----------  -----------

2004:
    Federal                $   7,194       (2,746)       4,448
    State                        918         (350)         568
                         -----------   -----------  ----------

                           $   8,112       (3,096)       5,016
                         ===========   ===========  ==========
2003:
    Federal                $  37,116         2,634      39,750
    State                      4,734           613       5,347
                         -----------   -----------  ----------
                           $  41,850         3,247      45,097
                         ===========   ===========  ==========

2002:
    Federal                $(22,229)      (10,656)    (32,885)
    State                    (5,608)       (2,713)     (8,321)
                         -----------   -----------  ----------
                           $(27,837)      (13,369)    (41,206)
                         ===========   ===========  ==========



The tax effects of temporary  differences that give rise to significant portions
of the  deferred  tax  assets  and  liabilities  at March 31,  2004 and 2003 are
presented below:

                                                       2004         2003
                                                   -----------  -----------

Deferred tax asset-intangibles and property
  and equipment, principally due to differences
  in  amortization and depreciation                $     1,078            -
                                                   ===========  ===========


Deferred tax liability-intangibles and property
  and equipment, principally due to differences
  in  amortization and depreciation                $         -        2,018
                                                   ===========  ===========





(5) 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,  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.


<PAGE> 38


                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002


     Pursuant to the Directors  Plan,  each  non-employee  director  received an
option to purchase 5,000 shares on October 1, 1996 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.
Due to the pending sales of the Company's  two operating  divisions,  no options
were  granted to the  directors on January 1, 2004.  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.

     At March 31, 2004,  there were 161,906 shares available for grant under the
ISOP Plan and 19,500 shares  available for grant under the Directors  Plan.  The
per share weighted average fair value of stock options granted during 2004, 2003
and 2002 was $0(no options granted in 2004), $.73 and $.94, 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 six years for 2004, 2003 and 2002.


     A summary  of the stock  options  which  have been  issued,  exercised  and
forfeited follows:

<PAGE> 39

                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2003, 2002 and 2001


                          Year ended        Year ended         Year ended
                          March 31, 2004    March 31, 2003     March 31, 2002
                          --------------    --------------     --------------
                                   Weighted           Weighted          Weighted
                           Number  average   Number   average   Number  average
                           of      exercise  of       exercise  of      exercise
                           shares  price     shares   price     shares  price
                         --------  ------   --------  ------   -------  --------

Balance at the beginning
   of the year             30,725  $ 3.17    106,351  $ 2.72   114,699   $  2.70
Granted                         0       0      3,000    3.50     4,500      3.50
Forfeited                (12,725)    3.00   (48,626)    2.61     (348)      2.50
Exercised                 (3,000)    3.00   (30,000)    2.50  (12,500)      2.83
                        ---------  ------   --------  ------  --------  --------
Balance at the end
   of the year             15,000  $ 3.35     30,725  $ 3.17   106,351   $  2.72
                        =========  ======   ========  ======  ========  ========

Exercisable at the end
   of the year             15,000  $ 3.35     30,725  $ 3.17   106,351   $  2.72
                        =========  ======   ========  ======  ========  ========



 (6) Fair Value of Financial Instruments

     The following  summary  presents a  description  of the  methodologies  and
assumptions  used  to  determine  the  fair  value  of the  Company's  financial
instruments.

     (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 Note Receivable

     Fair value is considered to be equal to the carrying  value of the accounts
and  note  receivable,  as  they  are  generally  short-term  in  nature  or are
receivable on demand.

     (c) Accounts Payable

     Fair value is considered to be equal to the carrying  value of the accounts
payable due to the short-term nature of these instruments.

     (d) 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, 2004 and 2003, the
amounts that will  actually be realized or paid at settlement or maturity of the
instruments could be significantly different.


<PAGE> 40

                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002


(7) Net Earnings (Loss) Per Share

     A summary of the Company's basic and diluted  earnings (loss) per share is
as follows:


                                                 Years ended March 31
                                        -------------------------------------
                                               2004         2003         2002
                                        -----------  -----------  -----------

    Net earnings (loss)                   $   7,219       75,644     (82,759)
                                        ===========  ===========  ===========
    Basic EPS - weighted average shares
     outstanding                            758,720      743,239      730,865
                                        ===========  ===========  ===========
    Basic earnings (loss) per share      $      .01          .10        (.11)
                                        ===========  ===========  ===========
    Basic EPS - weighted average shares
      outstanding                           758,720      743,239      730,865
    Effect of dilutive securities -
      stock options                           1,768       14,083            -
                                        -----------  -----------  -----------
    Dilutive EPS - weighted average
       shares outstanding                   760,488      757,322      730,865
                                        ===========  ===========  ===========
    Diluted earnings per share        $         .01          .10        (.11)
                                        ===========  ===========  ===========
    Stock options not included in
      Diluted EPS since anti-dilutive             -            -       23,872
                                        ===========  ===========  ===========


(8) 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,  2004,
2003 and 2002,  respectively.  The Company has two  distinct  business  segments
consisting of Corporate Trust services and Wealth Management Group 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>41

                               Corporate    Wealth      Corporate
                               Trust        Management  Other           Total
                               -----------  ----------  -----------  -----------


March 31, 2004:
Service fee revenue             $2,250,220   2,158,990           --    4,409,210
Interest & other revenue            -            --          38,047       38,047
                               -----------  ----------  -----------  -----------

                                $2,250,220   2,158,990       38,047    4,447,257
                               -----------  ----------  -----------  -----------

Operating expenses:
  General and administrative    $1,431,630   1,765,602    1,150,080    4,347,312
  Depreciation and amortization     15,556      18,670       53,484       87,710
                               -----------  ----------  -----------  -----------

                                $1,447,186   1,784,272    1,203,564    4,435,022
                               -----------  ----------  -----------  -----------

Earnings(loss) before taxes     $  803,034     374,718  (1,165,517)       12,235
                               ===========  ==========  ===========  ===========
Identifiable assets             $  755,548     378,438    2,053,055    3,187,041
                               ===========  ==========  ===========  ===========
Capital expenditures            $    7,174      11,036       16,042       34,252
                               ===========  ==========  ===========  ===========


March 31, 2003:
Service fee revenue             $2,463,200   1,661,996           --    4,125,196
Interest & other revenue                --          --       36,690       36,690
                               -----------  ----------  -----------  -----------
                                $2,463,200   1,661,996       36,690    4,161,886

Operating expenses:
  General and administrative    $1,631,581   1,199,721    1,094,885    3,926,187
  Depreciation and amortization     25,167      15,454       74,337      114,958
                               -----------  ----------  -----------  -----------

                                $1,656,748   1,215,175    1,169,222    4,041,145
                               -----------  ----------  -----------  -----------

Earnings (loss) before taxes    $  806,452     446,821  (1,132,532)      120,741
                               ===========  ==========  ===========  ===========
Identifiable assets             $  908,817     393,993    1,821,413    3,124,223
                               ===========  ==========  ===========  ===========
Capital expenditures            $    2,651      23,443       48,941       75,035
                               ===========  ==========  ===========  ===========


March 31, 2002:
Service fee revenue             $2,548,731   1,242,544           --    3,791,275
Interest & other revenue                --          --       74,226       74,226
                               -----------  ----------  -----------  -----------
                                $2,548,731   1,242,544       74,226    3,865,501

Operating expenses:
  General and administrative    $1,704,342   1,051,698    1,082,790    3,838,830
  Depreciation and amortization     46,347      11,949       92,340      150,636
                               -----------  ----------  -----------  -----------

                                $1,750,689   1,063,647    1,175,130    3,989,466
                               -----------  ----------  -----------  -----------

Earnings (loss) before taxes    $  798,042     178,897  (1,100,904)    (123,965)
                               ===========  ==========  ===========  ===========
Identifiable assets             $  787,326     237,702    1,862,746    2,887,774
                               ===========  ==========  ===========  ===========
Capital expenditures            $    2,423       9,488       35,933       47,844
                               ===========  ==========  ===========  ===========






<PAGE> 42

                             COLONIAL TRUST COMPANY
                          Notes to Financial Statements
                          March 31, 2004, 2003 and 2002


(9) 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, all of
which  must be  "liquid"  (as  defined by the  State) as of March 31,  2004.  To
satisfy this requirement,  Colonial owns certificates of deposit held with banks
totaling  $506,242 at March 31, 2004.  These assets are classified as restricted
cash in the accompanying balance sheets.

     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,  with the possible  exception of the event mentioned  below,
the  effect  of such  matters  will not have a  material  adverse  effect on the
Company.

     Dorothy  Castenada,  as  Personal  Representative  of the Estate of Dorothy
Long, vs. Colonial Trust Company (PB 2002-000207).

     The  Company is a  defendant  in a lawsuit  filed in the  Arizona  Maricopa
County Superior Court, Probate Division,  by the personal  representative of the
Dorothy  Long  Trust  (the  "Trust"),  a trust for which the  Company  served as
trustee.  The personal  representative of the Trust has alleged that the Company
breached its duties as trustee in connection with the Trust.

     The Company filed a counter-petition against the personal representative of
the  Trust  and also  filed a  third-party  complaint  against  counsel  for the
personal representative at the time the allegedly-wrongful acts occurred. In its
Complaint,  the personal representative sought damages of approximately $200,000
against the Company,  representing the amount of loan fees incurred by the Trust
as a result of the  allegedly-wrongful  acts of the Company, plus (i) the return
by the Company of certain  trustee's  fees,  attorneys' fees and costs which the
Company  previously  received from the Trust, (ii) the payment by the Company of
costs and  attorneys'  fees incurred by the personal  representative,  and (iii)
pre-judgment interests on the above loan fees.

     A trial in the above matter took place on November 3-5, 2003. Following the
trial,  the Court  entered a final order of  judgment:  (a) that the Company and
counsel for the personal  representative had breached their respective fiduciary
duties  to the  Trust,  (b)  that  the  Company  and  counsel  for the  personal
representative  were each liable for fifty percent (50%) of the after-tax damage
suffered  by the Trust as a result of its  payment of the above loan fees,  plus
interest  through the date of payment of the judgment,  (c) that the Company was
liable for certain  attorney's  fees and costs  incurred in connection  with the
above litigation which had previously been paid from the Trust, and (d) ordering
that  Colonial be removed as Trustee for the Trust and replaced by a new trustee
identified by the Court.

     The Company paid a total of $254,556 to the Trust in March 2004 as a result
of the order of  judgment in the above  matter.  The Company has also paid legal
fees to its counsel of $44,406 in  connection  with this matter.  These sums are
reflected  as  general  and  administrative  expenses  in the  Company's  income
statement for the fiscal year ended March 31, 2004.

     Additionally, counsel for the personal representative has filed a notice of
appeal with  respect to the above order of  judgment.  The Company is  presently
unable to determine whether any additional costs will be incurred as a result of
the appeal.

<PAGE> 43

Item 8.    Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure.

     None.



Item 8A.  Controls and Procedures

     As required by Rule 13a-15 under the Exchange Act, the Company  carried out
an evaluation of the  effectiveness of the design and operation of the Company's
disclosure  controls and  procedures.  This evaluation was carried out under the
supervision and with the  participation of the Company's  management,  including
our  Chief  Executive  Officer  and our  Controller/Treasurer.  Based  upon that
evaluation,  our Chief Executive Officer and our Controller/Treasurer  concluded
that the Company's  disclosure  controls and  procedures are effective as of the
Company's  fiscal year ended  March 31,  2004.  The Company has also  concluded,
after appropriate evaluation,  that no changes in the Company's internal control
over financial  reporting  occurred in the fiscal year ended March 31, 2004 that
has  materially  affected,  or is reasonably  likely to materially  affect,  the
Company's internal control over financial  reporting.  The foregoing  evaluation
was also carried out under the  supervision  and with the  participation  of the
Company, including our Chief Executive Officer and our Controller/Treasurer.

     Disclosure  controls and procedures are controls and other  procedures that
are  designed to ensure that  information  required to be  disclosed  in Company
reports  filed or  submitted  under the  Exchange  Act is  recorded,  processed,
summarized and reported within the time periods  specified in the Securities and
Exchange  Commission's  rules and  forms.  Disclosure  controls  and  procedures
include controls and procedures designed to ensure that information  required to
be disclosed in Company  reports filed under the Exchange Act is accumulated and
communicated to management,  including the Company's Chief Executive Officer and
Controller/Treasurer  as  appropriate,   to  allow  timely  decisions  regarding
required disclosure.


<PAGE> 44

                          PART III



Item 9. Directors and Executive Officers of the Registrant.

     The  following  table  contains  information  regarding  the  directors and
executive officers of the Company at March 31, 2004:

        Name                Position                  Age

    Lynn R. Camp            Chairman of the Board     66
                            and Director

    Gerald G. Morgan        Director                  48

    Mike Borger             Director                  49

    Bill McMorries          Director                  77

    John K. Johnson         President and Chief       46
                            Executive Officer and
                            Director

    Cecil E. Glovier        Chief Operating Officer   52
                            Secretary

    Kurt J. Kiesling        Vice President            37

    Ian B. Currie           Controller/Treasurer      50

    Bruce L. Mitchell       Vice President            57

    Susan D. Carlisle       Vice President            44



     All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors.  Lynn R. Camp was a director
of Church  Loans and  Investments  Trust  ("Church  Loans")  prior to becoming a
director of the Company.  Bill  McMorries is currently  chairman of the Board of
Directors and Mike Borger is currently a director of Church Loans.


<PAGE> 45


Background and Experience of Directors and Executive Officers

     Lynn R. Camp has served as a director of the Company since June 1990 and as
Chairman of the Board since October 1990. From 1991 until May 1999, he served as
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. Mr. Camp
currently serves as a consultant to Turnkey Computer.

     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, Williamson and
Boykin, located in Amarillo, Texas. Mr. Morgan has served in this capacity for a
period in excess of 5 years.

     Michael W.  Borger  rejoined  the Board in May of 2003 to fill a vacancy on
the Board caused by the  resignation  of Randy Barton from the Board in December
2002.  Mr.  Borger  previously  served as a director of the Company from June of
1990 until  January of 2001.  Mr. Borger also  previously  served the Company as
President  from June 1990 to August 1991 and as Vice  President from August 1991
until  November  1995. Mr. Borger is President,  Chief  Executive  Officer and a
director of Turnkey Leasing Ltd. ("Turnkey  Leasing").  Mr. Borger has served in
these  capacities  for in excess of five  years.  Turnkey  Leasing,  located  in
Amarillo,  Texas, is an equipment leasing company. Mr. Borger was elected to the
Board of Trust Managers of Church Loans in April of 2002.

     B. R.  McMorries  is a  consulting  engineer  and became a director  of the
Company  in May of 2003  with  the  expansion  of the  Board  from  four to five
members.  Mr.  McMorries  is Chairman  of the Board of Trust  Managers of Church
Loans and has served in this capacity for a period in excess of 5 years.

     John K. Johnson has served as the Company's President since August 1991. He
previously served as the Company's Vice-President from June 1990 to August 1991.
He has  served as a  director  since  November  of 1995.  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 Exhibits 10
(c)-(e) of the  Company's  Annual Report on Form 10-KSB for March 31, 2001 filed
on June 29, 2001.

     Cecil E.  Glovier has served as Chief  Operating  Officer/Secretary  of the
Company  since August 2000. He  previously  served as the Company's  Senior Vice
President/Secretary from August 1996 to August 2000 and Vice President/Secretary
from   November   1995   to   August   1996.   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
Exhibits  10(f)-(h) of the Company's  Annual Report on Form 10-KSB for March 31,
2001 filed on June 29, 2001.



<PAGE> 46



     Bruce L.  Mitchell  has  served  as Vice  President  of the  Company  since
December  1999.  Prior to his  employment  with the  Company,  he served as Vice
President of M&I Bank in Phoenix,  Arizona from December 1998 to December  1999.
Mr. Mitchell was also Vice President of Wright Investor Services from April 1993
to September 1998.

     Kurt  J.  Kiesling  has  served  as Vice  President  of the  Company  since
September 2000. He previously  served as Manager of Corporate Trust IRA and Bond
Operations  from April 1999 to August 2000,  and Manager of Corporate  Trust IRA
department  from January 1997 to March 1999.  Prior to his  employment  with the
Company,  Mr.  Kiesling  served as a Financial  Analyst for a national  HMO from
August 1995 to January  1997 and as an Internal  Auditor for the City of Phoenix
from December 1993 to July 1995.

     Ian B. Currie has served as  Controller/Treasurer  of the Company  (and the
Company's  principal  financial and accounting officer) since August 2000. Prior
to his employment with the Company,  he served as a Consultant to the Company on
various accounting matters from October 1999 to July 2000, and as Controller and
Investment  Administrator for a private investment  company in Phoenix,  Arizona
from November 1994 to September  1999. Mr. Currie was an independent  accounting
consultant  from  June 1993 to  October  1994,  and  prior to this,  served in a
variety of  positions  from  Accounting  Manager to  Controller  with a group of
privately  held  investment,  real estate and oil and gas  companies in Houston,
Texas from May 1978 to May 1993. Mr. Currie is a certified public accountant.

     Susan D.  Carlisle has served as Vice  President  of the Company  since May
1999 and Legal  Compliance  Department  Manager since July 1996.  She previously
served as Assistant  Vice  President of the Company from  November  1995 to June
1996 and Compliance  Administrator  from November 1994 to October 1995. Prior to
her employment with the Company, Ms. Carlisle was a Loan Administrator for Wells
Fargo  Realty  Advisors  and  Assistant  to the  General  Counsel  of a property
developer and management company. Ms. Carlisle is a certified legal assistant.

     Based solely 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, 2004.


Audit Committee Financial Expert

     The  Company  does  not  believe  that  any of  the  members  of its  Audit
Committee,  currently comprised of Messrs.  Camp, Morgan,  Borger and McMorries,
would qualify as an "audit committee  financial expert," as that term is defined
under  rules  promulgated  by the SEC  under  the  Sarbanes-Oxley  Act of  2002.
However,  the Company  believes that each Audit Committee  member has sufficient
knowledge in financial and auditing  matters to adequately  discharge his duties
under the Committee and that the cost associated with the retention of an "audit
committee financial expert" would not be a judicious use of funds in the current
fiscal  year,  particularly  given the  considerable  amount of time,  money and
resources devoted during the past several months to the Company's proposed sales
of its  Corporate  Trust and  Wealth  Management  Group  businesses  and Plan of
Liquidation and Dissolution.  In the event such sales  transactions and the Plan
of Liquidation are not approved by stockholders  and  subsequently  consummated,
the  Company's  board of directors  intends to  reconsider  the  retention of an
"audit committee financial expert" during the fiscal year ending March 31, 2005.

Code of Ethics

     The  Company  has not  adopted  a code  of  ethics  for  any of its  senior
executive  officers.  During the past  several  months,  the Company has devoted
considerable  time,  money and resources to the Company's  proposed sales of its
Corporate Trust and Wealth  Management  Group businesses and Plan of Liquidation
and  Dissolution.  In the event  that such  sales  transactions  and the Plan of
Liquidation are not approved by stockholders and subsequently  consummated,  the
Company's  board of  directors  intends to  consider  the  adoption of a code of
ethics for its senior executives during the fiscal year ending March 31, 2005.

<PAGE> 47



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 Messrs.  John K.
Johnson, the Company's Chief Executive Officer,  Cecil E. Glovier, the Company's
Chief Operating Officer, and, Bruce L. Mitchell, the Company's  Vice  President,
respectively (the "Named Executive Officers"):


                           SUMMARY COMPENSATION TABLE


                                                                  Long-Term
                                      Annual Compensation         Compensation
                              --------------------------------    --------------
                                                                  Securities
                              Fiscal                              Underlying
Name & Principal Position     Year     Salary       Bonus         Options/SAR
(#)
-------------------------     -------  -----------  ----------    --------------

John K. Johnson               2004    $102,854      $   652    (a)
  CEO-President               2003    $101,448      $ 6,792    (a)     (a) (d)
                              2002     $98,223      $     0    (a)     (a) (d)

Cecil E. Glovier              2004    $101,338      $   633    (b)
  Chief Operating Officer     2003     $97,230      $ 6,792    (b)     (b) (d)
                              2002     $91,408      $     0    (b)     (b) (d)

Bruce L. Mitchell             2004     $87,075      $87,071    (c)      0
  Vice President              2003     $86,315      $70,028    (c)      0
                              2002     $82,373      $64,010    (c)      0



     (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  vested  in  three  equal
installments  of 5,000 each on July 1, 1997,  1998 and 1999,  respectively.  Mr.
Johnson  exercised  his  option to  purchase  30,000  shares of Common  Stock on
September 20, 2002. Bonus amount excludes $3,289,  $3,046 and $3,850 contributed
by the Company to the 401(k)  account for Mr. Johnson for the fiscal years ended
March 31, 2004, 2003 and 2002,  respectively.  The increase in salary amounts of
$3,225  and $1,406 for  fiscal  years  2003 and 2004, respectively,  were due to
increased health  insurance costs having to be paid by the officer.  These costs
were previously paid directly by the Company.

     (b) On October 1,  1996,  Mr.  Glovier  was  granted an option to  purchase
10,000  shares of Common Stock of the Company at an exercise  price of $2.50 per
share. The option to purchase 10,000 such shares vested  immediately upon grant.
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.  This
option to purchase shares vested in three increments of 5,000 each on August 11,
1998, 1999 and 2000. The forgoing  options expired on September 30, 2002.  Bonus
amount  excludes  $3,244,  $2,917 and $3,496  contributed  by the Company to the
401(k) account for Mr.  Glovier for the fiscal years ended March 31, 2004,  2003
and 2002,  respectively.  Increases  in salary  amounts of $3,225 and $1,406 for
fiscal years 2003 and 2004, respectively, were due to increased health insurance
costs  having  to be paid by the  officer.  These  costs  were  previously  paid
directly by the Company.  The  remaining  portion of the  increases,  $2,597 and
$2,702 for fiscal  years 2003 and 2004,  respectively,  were due to  performance
reviews.


<PAGE> 48

     (c) Bonus amount  excludes  $4,668,  $5,545 and $4,031  contributed  by the
Company to the 401(k) account for Mr.  Mitchell for the fiscal years ended March
31, 2004, 2003 and 2002, respectively.

     (d) All share amounts and per-share  exercise  prices have been adjusted to
reflect the 1-for-10 reverse stock split which occurred in fiscal 1999.



     The following table sets forth certain information concerning option grants
during the Company's last fiscal year to the Company's Named Executive Officers:


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

                               (Individual Grants)


                             Number of    Percent of
                             Securities   Total Options  Exercise
                             Underlying   Granted to     or Base
                             Options      Employees in   Price       Expiration
 Name & Principal Position   Granted      Fiscal Year    ($/sh)      Date
--------------------------   -----------  -----------    ----------- -----------

John K. Johnson              0            0              N/A         N/A
  CEO-President

Cecil E. Glovier             0            0              N/A         N/A
  Chief Operating Officer

Bruce L. Mitchell            0            0              N/A         N/A
  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, 2004:


<PAGE> 49



         AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
                           YEAR END OPTION/SAR VALUES

                                                   Number of       Value of
                                                   Securities      Unexercised
                         Shares                    Underlying      In-the-Money
                         Acquired                  Unexercised     Options at
                         on           Value        Options at      FY-end($)
Name & Principal         Exercise     Realized     FY-End ($)      Exercisable/
Position                 (#)          ($)          Exercisable/    Unexercisable
                                                   Unexercisable
------------------       ---------    ----------   -------------   -------------


John K. Johnson                  0            $0               0              $0
CEO-President

Cecil E. Glovier                 0            $0               0              $0
Chief Operating Officer

Bruce L. Mitchell                0            $0               0              $0
Vice President



           Employment Agreements

     The Company has entered into employment  agreements  with Mr. Johnson,  the
Company's President, and Mr. Glovier, the Company's Chief Operating Officer.

     Mr.  Johnson's  original  agreement had a three-year  term that ran through
June 30, 1999.  Under the agreement,  Mr.  Johnson's base salary was $80,000 per
year.  The  agreement  was amended as of August 27,  1998 to  increase  the base
salary to $90,000 per year and extend the term an additional 2 years to June 30,
2001. The agreement was amended as of August 1, 1999 to increase the base salary
to $94,500 per year; was extended for  additional  one-year term on July 1, 2002
and 2003; and was extended for an additional  one-year term  commencing  July 1,
2004.

     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,  1997.  Upon mutual  agreement  between  Mr.  Johnson and the
Company for the years  ended  March 31,  2004,  and 2003,  the annual  bonus was
reduced to an amount equal to seven and one-half  percent of the total after-tax
net income.  The bonuses were $652 and $6,792, or $217 and $2,264 less than what
would have been paid under the original  bonus  agreement for fiscal years ended
March 31, 2004 and 2003, respectively. For the fiscal year ended March 31, 2002,
due to the Company's net loss, no bonus was earned by Mr.  Johnson.  Such bonus,
if any, is payable 100 days from the end of the Company's fiscal year.  Pursuant
to an agreement entered into in October 2003, Mr. Johnson will receive,  in lieu
of the bonus described  immediately  above, a bonus of $142,850 upon the closing
of the Company's  sales of its  Corporate  Trust segment to Happy State Bank and
its Wealth  Management  Group segment to Dubuque Bank & Trust;  sixty percent of
the  foregoing  bonus is payable  upon the closing of the sale of the  Corporate
Trust  segment,  and forty  percent of such bonus is payable upon the closing of
the sale of the Wealth Management Group segment.

     The original  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  vested in three equal
installments  of 5,000 each on July 1, 1997,  1998 and 1999,  respectively.  Mr.
Johnson  exercised  his option to purchase the 30,000  shares of Common Stock on
September 30, 2002. The agreement also contains  confidentiality and non-compete
covenants.


<PAGE> 50

     Mr.  Glovier's  agreement,  dated  April 1, 2003,  was amended on April 29,
2004. It origianlly  had a one-year term running  through March 30, 2004. It now
runs  through the  earlier of March 30, 2005 or the date on which the  Company's
potential sale of its Corporate Trust business to Happy State Bank is closed, on
which date Mr.  Glovier  will become an employee of Happy State Bank.  Under the
agreement,  Mr. Glovier receives a base salary of $92,882,  plus an annual bonus
each fiscal year in which the Company generates net income (after the payment of
income taxes),  calculated according to the following  formula:(y) after-tax net
income per share of Common Stock,  multiplied by (z) a number of shares equal to
seven and one-half percent(7 1/2%) of the Company's total issued and outstanding
Common Stock at March 31, 2000.  Shares of Common Stock which are issuable  upon
the exercise of issued and  outstanding  (but  unexercised)  stock options as of
March 31, 2000 will be excluded for purposes of calculating the Company's issued
and outstanding  Common Stock in the foregoing  formula.  Such bonus, if any, is
payable 90 days from the end of the Company's  fiscal year.  For the fiscal year
ended March 31, 2004 and 2003, Mr. Glovier  received  bonuses of $633 and $6,792
under his employment agreement. For the fiscal year ended March 31, 2002, due to
the  Company's  net loss,  no bonus was earned by Mr.  Glovier.  Pursuant to the
amendment  entered into in April 2004, Mr. Glovier will receive,  in lieu of the
bonus described  immediately above, a bonus of $107, 150 upon the closing of the
Company's  sales of its  Corporate  Trust  segment  to Happy  State Bank and its
Wealth  Management  Group segment to Dubuque Bank & Trust;  sixty percent of the
foregoing  bonus is payable upon the closing of the sale of the Corporate  Trust
segment,  and 40% of such bonus is payable  upon the  closing of the sale of the
Wealth Management Group segment. Additionally, in the event that Colonial closes
the sale of its  Corporate  Trust  segment  to Happy  State Bank and as a result
thereof Mr.  Glovier  becomes an employee of Happy State Bank,  Mr. Glovier will
receive an amount  equal to his annual base salary with  Colonial as of the date
of such amendment, less any amount paid by Happy State Bank during Mr. Glovier's
employment  by Happy  State  Bank,  in the event  Mr.  Glovier's  employment  is
terminated  during the first year of his  employment  by Happy State Bank (other
than certain  terminations for cause, as set forth in the amendment).  A copy of
the foregoing agreement and amendment are attached hereto as Exhibit 10(l).

     Mr. Glovier's agreement provides for 25,000 incentive stock options with an
exercise  price of $2.50 per share,  a total of 10,000 which vested  immediately
upon grant. The remaining  15,000 options vested in three equal  installments of
5,000  each on August  11,  1998,  1999 and 2000,  respectively.  The  foregoing
options expired on September 30, 2002.

     Mr. Glovier is also entitled to health and other insurance  benefits on the
same basis as the Company's other executive officers.  Under the agreement,  the
Company pays for the premiums on a $500,000 term life insurance  policy insuring
Mr.  Glovier's  life; in the event of his death,  one-half of the face amount of
the policy would be payable to the Company and the other half the face amount of
the policy would be payable to Mr. Glovier's  beneficiaries.  The agreement also
contains confidentiality and non-compete covenants.



<PAGE> 51



           Directors' Compensation

     The Company's  non-employee  directors were paid $21,600 in cash as a group
during the fiscal  year ended March 31,  2004 for their  services as  directors.
Each  director  is paid $200 per month for  serving as a  director  and $200 per
month  for each  meeting  and $100 for each  additional  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  market price of the
Company's  Common Stock on the date of grant.  There were no options  granted to
such  directors  during the  fiscal  year  ended  March 31,  2004 in view of the
proposed sales of the Company's two operating divisions.  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 15, 2004,  concerning
the Common Stock  beneficially  owned by each  director of the  Company,  by the
Company's Named Executive Officers, 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:


                                         Amount (number of
       Name and Address                  shares) and Nature           Percent
       of Beneficial Owner               of Beneficial Owner(1)       of Class

       Lynn R. Camp                 (2)  22,102 shares                2.9%
       7736 Baughman
       Amarillo, Texas 79121

       Gerald G. Morgan, Jr.        (2)  15,081 shares                2.0%
       4705 Olsen
       Amarillo, Texas 79106

       Mike Borger                       24,697 shares                3.3%
       P. O. Box 51200
       Amarillo, Texas 79159

       Bill McMorries                    30,931 shares                4.1%
       2907 Harmony
       Amarillo, Texas 79106

       John K. Johnson                   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

       Cecil E. Glovier                   3,140 shares                (4)
       16925 Roadrunner Road
       Mayer, Arizona 86333

       Bruce L. Mitchell                  1,000 shares                (4)
       1974 E. McNair Dr
       Tempe, AZ 85283-4922

       Susan D. Carlisle            (5)   1,401 shares                (4)
       8026 E. Redwing Rd.
       Scottsdale, AZ 85250-5649

       Kurt J. Kiesling             (5)     401 shares                (4)
       13514 W. Post Dr.
       Surprise, AZ 85374-0000


       Directors and Executive
       Officers as a Group
             (9 persons)                139,729 shares                19.1%


<PAGE> 52


     (1)  Calculated  pursuant to Rule 13d-3 under the Exchange Act.  Shares not
outstanding  that are subject to options or warrants  exercisable  by the holder
thereof within 60 days of June 30, 2004 are deemed  outstanding  for purposes of
calculating  the number and percentage  owned by such  shareholder,  but are not
deemed  outstanding for the purpose of calculating the percentage  owned by each
other  shareholder  listed.  Except as  otherwise  noted,  all shares  listed as
beneficially  owned  by  a  shareholder  are  actually  outstanding.  Except  as
described  above and as otherwise  noted,  all figures are based upon a total of
760,843 shares of Common Stock issued and outstanding.

     (2) The totals for Messrs.  Camp and Morgan  include 7,500 shares of Common
Stock subject to immediately  exercisable  options held by each of Messrs.  Camp
and Morgan with the following  exercise prices per share: 3,000 shares at $3.00,
3,000 shares at $3.25, 9,000 shares at $3.50.


     (3) Includes  35,032 shares owned by Amberwood  Management Co. 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) Represents less than one percent of the outstanding Common Stock.


                              Equity Compensation Plan Information

----------------------------   ---------------    ----------------   -----------
Plan Category                   Number of
                                Securities         Weighted           Number of
                                to be issued       average exercize   securities
                                upon exercize      price of           remaining
                                of outstanding     outstanding        available
                                options,           options            for
                                warrants and       warrants and       future
                                rights             rights             issuance
----------------------------   ---------------    ----------------   -----------
                                    (a)                (b)                (c)
----------------------------   ---------------    ----------------   -----------
Equity compensation plans
approved by security holders      15,000              $3.35             181,406
----------------------------   ---------------    ----------------   -----------
Equity compensation plans not        0                $0.00                   0
approved by security holders
----------------------------   ---------------    ----------------   -----------
Total                             15,000              $3.35             181,406
============================   ===============    ================   ===========



     The Company has no knowledge of any arrangement  among  stockholders  which
may result in a change of control of the Company.



Item 12.   Certain Relationships and Related Transactions.

     During the fiscal  years  ended  March 31,  2004 and 2003,  the law firm of
Burdett,  Morgan  Williamson  & Boykin,  of which  Gerald G.  Morgan,  Jr., is a
partner,  received approximately $120,000 and $67,000,  respectively,  for legal
services provided to the Company. Mr. Morgan is a director of the Company.




Item 13.   Exhibits, List and Reports on Form 8-K.

    (a)(1) Financial Statements of the Company are set forth in Part II, Item 7.

       (2)    Exhibits

                  10.k             Plan of Liquidation and Dissolution
                  10.l             Employment agreement with Cecil Glovier dated
                                        April 1, 2003 and amendment  dated April
                                        29, 2004
                  31.1             Certification of John K. Johnson  pursuant to
                                        Section 302 of the Sarbanes-Oxley Act of
                                        2002
                  31.2             Certification  of  Ian B. Currie  pursuant to
                                        Section 302 of the Sarbanes-Oxley Act of
                                        2002
                  32.1             Certification of John K. Johnson  pursuant to
                                        Section 906 of the Sarbanes-Oxley Act of
                                        2002
                  32.2             Certification  of  Ian B. Currie  pursuant to
                                        Section 906 of the Sarbanes-Oxley Act of
                                        2002



    (b) Reports on Form 8-K.
          On January 28, 2004,  the Company  filed a Current  Report on Form 8-K
     related to the Purchase and Assumption Agreement between the Company, Happy
     State Bank and its parent, Happy Bancshares,  Inc., pursuant to which Happy
     State Bank has agreed to purchase  substantially  all of the assets of, and
     assume certain  liabilities  associated with, the Company's Corporate Trust
     division.  See "Item  6-Management's  Discussion  and  Analysis  or Plan of
     Operation-Agreement to Sell Corporate Trust Business."



<PAGE> 53

Item 14.  Principal Accountant Fees and Services.

     Audit Fees.  The aggregate  fees billed by KPMG,  the  Company's  principal
accountant,  for  professional  services for the audit of the  Company's  annual
financial  statements for the years ended March 31, 2004 and 2003 and for review
of financial  statements  included in the Company's  Form 10-QSB's  filed during
such periods were $71,500 and $70,000, respectively.

     Audit-Related  Fees.  The  aggregate  fees billed by KPMG for assurance and
related services that were reasonably related to the performance of the audit or
review of the Company's  financial  statements  that are not reported  under the
paragraph  entitled "Audit Fees" immediately above were $0 and $0 for the fiscal
years ended March 31, 2004 and 2003, respectively.

     Tax Fees. The aggregate fees billed by KPMG for tax compliance,  tax advice
and tax  planning  were  $18,350 and $8,310 for the fiscal years ended March 31,
2004 and 2003, respectively. Such services provided for the Company included the
preparation  of federal and state tax returns,  with related  estimated  payment
calculations and extension applications,  as well as various calculations of the
projected  tax  associated  with  the sale of the  Corporate  Trust  and  Wealth
Management Group businesses.

     All Other Fees. KPMG did not bill any fees for services provided during the
fiscal years ended March 31, 2004 and 2003, other than as described  immediately
above.

     Audit Committee's Pre-Approval Policies and Procedures. Consistent with SEC
policies regarding auditor independence,  the Audit Committee has responsibility
for appointing,  setting  compensation  and overseeing the work of the Company's
independent auditor. In recognition of this responsibility,  the Audit Committee
has  established a policy to  pre-approve  all audit and  permissible  non-audit
services provided by KPMG, the Company's independent auditor.

     Prior to engagement of the  independent  auditor for the next year's annual
audit, management will submit a list of audit services and related fees expected
to be rendered during that year to the Audit  Committee for approval.  The Audit
Committee  will  pre-approve  such annual  audit  services  and the fees related
thereto.

     Additionally,  KPMG reviews the  Company's  financial  statements  included
within the Company's  Form 10-QSB's  prior to the filing of such Form  10-QSB's,
and  also  provides  tax  compliance  and tax  planning  services.  Prior to the
engagement of KPMG to review the Company's financial  statements included within
the  Company's  Form  10-QSB's for a particular  quarter,  management  submits a
description of such services to the Audit  Committee for approval.  Prior to the
annual  engagement  of  KPMG  to  provide  tax  compliance  services,  including
preparation  of the  Company's  annual  federal  and state  income tax  returns,
management  submits a description  of such  services to the Audit  Committee for
approval.  Finally,  prior to the  engagement  of KPMG to provide  tax  planning
services,  management  submits  a  description  of such  services  to the  Audit
Committee  for  approval.  During the  fiscal  year ended  March 31,  2004,  the
foregoing tax planning  services  included  services related to the expected tax
effects  of the  Company's  proposed  sales of its  Corporate  Trust and  Wealth
Management  Group  businesses.  Any services not  described  above would require
pre-approval of the Company's Audit Committee before engagement of KPMG, subject
to  the  de  minimus   exceptions  for  non-audit  services  described  in  Rule
2-01(c)(7)(i) of Regulation S-X.

     The Audit Committee may delegate  pre-approval  authority to one or more of
its members.  The member to whom such  authority is delegated  must report,  for
informational  purposes only, any pre-approval  decisions to the Audit Committee
at its next meeting.

                                   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/ Ian B. Currie
                                                                   Ian B. Currie
                                                            Controller/Treasurer
                                                        (Principal Financial and
                                                             Accounting Officer)

Date:  July 14, 2004

     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


* Lynn R. Camp                  Chairman of the Board      July 14, 2004
Lynn R. Camp


* Gerald G. Morgan              Director                   July 14, 2004
Gerald G. Morgan


* Mike Borger                   Director                   July 14, 2004
Mike Borger


* Bill McMorries                Director                   July 14, 2004
Bill McMorries


* John K. Johnson               President and Director     July 14, 2004
John K. Johnson                 (Principal Executive
                                Officer)


*By: /s/ Ian B. Currie
     Ian B. Currie
     Attorney-in-Fact



<PAGE> 54