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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2000
Commission File No. 0-31235
CONX CAPITAL CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 62-1736894
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
502 N. DIVISION STREET, CARSON CITY, NV 89703
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(702) 886-0713
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $.01 Per Share
------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
- --
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K ( 229-405 of this
chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K. YES X NO
- --
There is no established market for the registrant's voting and
non-voting common equity. The aggregate book value of the voting
common equity held by non-affiliates on December 31, 2000 was
$6,517. For purposes of the foregoing calculation only, all
directors, executive officers, and their respective family
members, have been deemed affiliates. The registrant's revenues
for the fiscal year-end December 31, 2000, were $4,326,287.
Indicate the number of shares outstanding of each of the issuer s
classes of common stock, as of the close of the period covered by
this report.
Class Outstanding Shares
----------------------------- ------------
COMMON STOCK - PAR VALUE $.01 6,650,000
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
NONE
----
PART I
This annual report on Form 10-K contains forward-looking
statements as defined by the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements should be read in
conjunction with the cautionary statements and other important
factors included in this Form 10-K as well as in other filings
made by the Company with the Securities and Exchange Commission
("SEC") . These forward-looking statements are subject to a
number of risks and uncertainties, which could cause the
Company's actual results to differ materially from those
anticipated in such statements and include statements concerning
plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which
are other than statements of historical facts. Factors which
could cause such results to differ include the Company's limited
operating history, the Company's dependence on the operations of
an affiliated party, reliance upon third party financing, the
need for additional financing and other factors discussed in the
Company's filings with the SEC, including the Risk Factors set
forth in the Company's Form 10 dated January 16, 2001. Such
forward-looking statements may be identified, without limitation,
by the use of the words "anticipates," "estimates," "expects,"
"intends," "plans," "predicts," "projects," and similar
expressions.
The Company's expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a
reasonable basis, including without limitation, management's
examination of the historical operating trends, data contained in
the Company's records and other data available from third
parties. There can be no assurance, however, that the Company's
expectations, beliefs or projections will be achieved or
accomplished.
ITEM 1. Description of Business.
CONX Capital Corporation, a Delaware corporation (the
"Company" or "CONX"), with consolidated assets of approximately
$10.6 million as of December 31, 2000, is a specialty commercial
finance company engaged in the business of originating and
servicing equipment leases to regional trucking companies. To
date, the Company's leasing activities have been limited to
leasing of tractors and semi-trailers to one affiliated company,
Continental Express SD, Inc. As of December 31, 2000, the
assets of the Company had increased to $10,603,031
consisting primarily of cash and equipment, consisting of
leased tractors and semi trailers, valued at $10,152,605
net of depreciation. For the year ended December 31, 2000, net
income was $541,293.
The Company was organized in April 1998 with its corporate
headquarters located in Carson City, Nevada. The Company
currently originates long-term fixed and variable rate lease
products with Continental Express SD, Inc., an affiliate under
common control with the Company's controlling shareholder. In
the future, the Company intends to expand its loan and lease
products and may sell such loans and leases either through
securitizations or whole loan sales to institutional purchasers
on a servicing retained basis. The Company believes that such
loan and lease products will be attractive investments to
institutional investors because of the credit profile of its
borrowers, relatively long loan and lease terms, call protection
through prepayment penalties and appropriate risk-adjusted
yields. The Company also may periodically make equity investments
in certain of the companies that enter into loan and lease
arrangements with the Company as part of its core lending and
leasing business.
The Company currently originates leases through its offices
located in Carson City, Nevada and Little Rock, Arkansas. The
Little Rock, Arkansas office was opened in April, 1998 at the
time of the formation of the Company. The Carson City, Nevada
office has been the registered office of the Company since its
incorporation.
To date, the Company has no employees. Personnel performing
management and administrative functions on behalf of the Company
are provided to the Company under an employee leasing arrangement
with an affiliate of the Company controlled by the Company's
controlling stockholder. The activities of the Company
require on average approximately 10 hours per month for each
of the four leased employees. The Company will hire permanent
employees at such time as the activities of the Company can
support full time employees. At this time, the Company does
not anticipate the need for full time employees during the next
twenty-four month period.
To date, the Company's lease income has been derived solely
from one affiliated company, Continental Express SD, Inc. The
Company intends to focus on expanding leasing activities within
the trucking industry and potentially to expand its equipment
leasing activities into the materials handling industry
associated with the trucking and transportation industry. Over
the next twelve months, the Company anticipates adding additional
tractors and semi-trailers to its leasing fleet and to expand its
leasing activities with Continental Express SD, Inc. and other
trucking companies meeting the Company's leasing requirements.
No significant expansion of the scope of the Company's lending
activities is expected before the end of the calendar year 2002.
As the Company expands its lending and leasing activities
over the next twenty-four months, the Company's focus will shift
to providing funding to industries that have been historically
underserved by banks and other traditional sources of funding.
This new focus will require the Company to develop specific
industry expertise in the business sectors which it will serve in
order to provide individualized financial solutions for its
borrowers. The Company believes that its industry expertise in
the trucking industry, combined with its ability to be responsive
to borrowers and flexible in structuring transactions and product
offerings will give it a competitive advantage over more
traditional, highly regulated small business lenders. The
Company's future borrowers are anticipated to be generally small
business operators, most of whom are independent with proven
operating experience and a history of generating positive cash
flows. The Company will rely primarily upon its assessment of
enterprise value, based in part possibly on independent third-
party valuations, and historical operating cash flows to make
credit determinations, as opposed to relying solely on the value
of any collateral.
The Company faces intense competition in the business of
originating and selling loans and leases. Traditional
competitors in the financial services business include commercial
banks, thrift institutions, diversified finance companies, asset-
based lenders, and specialty finance companies. Many of these
competitors are substantially larger and have considerably
greater financial, technical and marketing resources than the
Company. Competition can take many forms, including convenience
in obtaining a loan or a lease, customer service, marketing and
distribution channels, amount and term of the loan, interest
rates charged to borrowers, and credit ratings. In addition, the
current level of gains realized by the Company's competitors on
the sale of their loans and leases could attract additional
competitors into these markets, with the possible effect of
lowering gains that may be realized on the Company's future loan
and lease sales. The Company believes that its industry
expertise, combined with its responsiveness to borrowers,
flexibility in structuring transactions and broad product
offerings give it a competitive advantage over more traditional,
highly regulated small business lenders serving the trucking
industry, and that such experience will be beneficial in
expanding into other areas of equipment lease and financing
transactions.
ITEM 2. Properties.
The Company's leases its executive and administrative
offices which are located at 502 North Division Street, Carson,
City, Nevada, and 1406 Cantrell Road, Little Rock, Arkansas.
These offices consist of an aggregate of approximately 3,500
square feet. Both leases have been extended through December 31,
2002. The Company owns no fee interest in any real property.
ITEM 3. Legal Proceedings.
There are no pending legal proceedings involving the Company as a
party or involving any of the Company's assets or leased
properties.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted for a vote of the security holders
during the fourth quarter of fiscal year 2000.
PART II
ITEM 5. Market for Common Equity and Related Stockholder
Matters.
There is no established public trading market for the Company's
common stock. There are no outstanding options or warrants to
purchase the common stock of the Company, or securities
convertible into the common stock of the Company. With the
exception of 44,800 shares of the Company's common stock, all of
the remaining issued and outstanding common stock of the Company
are held by persons who would be deemed to be affiliates for
purposes of the Securities Act of 1933, as amended (the
Securities Act ), and for purposes of Rule 144 as promulgated
thereunder. As of March 31, 2001, there were approximately 8
holders of record of the Company's common stock.
The Company has not declared or paid any cash dividends on
its common stock and does not intend to declare any dividends in
the foreseeable future. Payment of dividends, if any, is within
the discretion of the board of directors and would depend upon
the Company's earnings, if any, its capital requirements and
financial condition, and such other factors as the board of
directors may consider from time to time.
The Company did not sell or otherwise issue any equity
securities during the fiscal year ended December 31, 2000.
ITEM 6. Selected Financial Data.
The following sets forth the selected financial data for the
fiscal years ended December 31, 2000, December 31, 1999, and
December 31, 1998, respectively:
12/31/00 12/31/99 12/31/98
-------- ------- --------
Revenues $4,326,287 $2,894,050 $635,550
Net Income $541,293 $365,618 $8,517
Earnings per Share $0.0814 $0.0536 $0.0012
Cash Dividend per Share $0.00 $0.00 $0.00
Total Assets $10,603,031 $8,201,753 $4,687,816
Stockholders Equity $967,428 $426,135 $78,517
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation .
The following discussion and analysis below should be read
in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Annual Report on Form 10-K.
To date, the Company's only activities and sources of operating
revenue have been leases of tractor and trailer truck equipment
to one affiliated company, Continental Express SD, Inc.
Results of Operation
Fiscal year ended December 31, 2000
Lease income was $4,326,287 for the fiscal year ended
December 31, 2000. As of December 31, 2000, the Company had 173
tractors and 142 semi-trailers leased to its customers. Operating
expenses (consisting primarily of interest and depreciation) for
the fiscal year ended December 31, 2000 were $3,452,765, and
operating expenses as a percentage of lease income was 79.8%.
Income from operations for the fiscal year ended December 31,
2000 was $873,522. Other income for the fiscal year ended
December 31, 2000 was $8,888. Income before income taxes for the
fiscal year ended December 31, 2000 was $882,410, with provision
for income taxes of $341,117, resulting in net income for the
fiscal year ended December 31, 2000 of $541,293.
Fiscal Year Ended December 31, 1999
Lease income was $2,894,050 for the fiscal year ended
December 31, 1999. As of December 31, 1999, the Company had 133
tractors and 142 semi-trailers leased to its customers. Operating
expenses (consisting primarily of interest and depreciation) for
the fiscal year ended December 31, 1999 were $2,301,617, and
operating expenses as a percentage of lease income was 79.5%.
Income from operations for the fiscal year ended December 31,
1999 was $592,433. Other income for the fiscal year ended
December 31, 1999 was $2,830. Income before income taxes for the
fiscal year ended December 31, 1999 was $595,263, with provision
for income taxes of $229,645, resulting in net income for the
fiscal year ended December 31, 1999 of $365,618.
Fiscal Year Ended December 31, 1998
Lease income was $635,550 for the fiscal year ended December
31, 1998. As of December 31, 1998, the Company had 57 tractors
and 60 semi-trailers leased to its customers. Operating expenses
(consisting primarily of interest and depreciation) for the
fiscal year ended December 31, 1998 were $621,813, and operating
expenses as a percentage of lease income was 97.8%. Income from
operations for the fiscal year ended December 31, 1998 was
$13,737. There was no other income or expense for the fiscal
year ended December 31, 1998. Income before income taxes for the
fiscal year ended December 31, 1998 was $13,737, with provision
for income taxes of $5,220, resulting in net income for the
fiscal year ended December 31, 1998 of $8,517.
The Company anticipates additional leasing activity with
Continental Express SD, Inc., through the year 2001. During
2001, the Company will increase its efforts to provide equipment
leasing and loan products to other customers in an effort to
diversify its revenue stream and the products being offered.
However, during the next twelve months, the Company does not
anticipate any material change in the sources of its revenue
stream.
Liquidity and Capital Resources
The Company's current assets and working capital are
sufficient to meet its needs for the next twelve months of
operation as the Company is currently operating. However, the
Company has an ongoing need to finance its lending activities.
This need is expected to increase as the volume of the Company's
loan and lease originations increase. The Company's primary cash
requirements include the funding of (i) loans and leases pending
their sale, (ii) fees and expenses incurred in connection with
its securitization program, (iii) overcollateralization or
reserve account requirements in connection with loans pooled and
sold, (iv) interest, fees, and expenses associated with the
Company's warehouse credit and repurchase facilities with certain
financial institutions, (v) federal and state income tax
payments, and (vi) ongoing administrative and other operating
expenses. To date, the Company currently has funded these cash
requirements by credit facilities granted by Navistar Financial
Corporation, Banc One Leasing Corporation, GE Capital Corporation
and Fleet Capital Leasing and guaranteed by the Company's
affiliate, Continental Express SD, Inc. The Company anticipates
that it will rely more heavily on securitizations, whole loan and
lease sales, and borrowings as its cash requirements increase.
The Company has also offered and sold its common stock to
fund its operations. In April 1998, the Company issued 7,000,000
shares of common stock for net proceeds of $70,000.
Inflation
The impact of inflation is reflected in the increased cost
of the Company's operating expenses, excluding depreciation and
interest expense. Changes in interest rates have a greater
impact on the Company's performance than do the effects of
general levels of inflation. Inflation affects the Company
primarily through its effect on interest rates, since interest
rates normally increase during periods of high inflation and
decrease during periods of low inflation. The Company intends to
manage its exposure to inflationary interest rate risks by
closely monitoring the difference or spread between the
effective rate of interest received by the Company and the rates
payable by the Company.
ITEM 8. Financial Statements and Supplementary Data.
The financial statements, including notes thereto, are
attached in the Financial Statement Schedules in Item 14 to this
Annual Report on Form 10-K.
ITEM 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The names of the directors and executive officers of the
Company, as well as their respective ages and positions with the
Company, are as follows:
Name Age Position
---- --- --------
Edward M. Harvey President and Chairman of the
Board of Directors
Todd W. Tiefel Secretary, Treasurer and Director
John P. Flahavin Director
Theodore C. Skokos Director
Michael Kelly Woodridge Director
Edward M. Harvey has been the President and the Chairman of
the Company's Board of Directors since the Company's inception.
Prior to founding the Company, Mr. Harvey founded and continues
to own and serve as the Chairman of the Board of Harvey
Incorporated and several affiliated companies, including Harvey
Industries, Inc., Harvey Manufacturing Corporation and Advanced
Sawmill Machinery, Inc. (Manufacturing), Continental Express SD,
Inc. (Trucking), Preston National Bank (Banking) and Continental
Lumber Company and Travis Lumber Company, Inc. (Timber).
Todd W. Tiefel has served as the Secretary, Treasurer and a
Director of the Company since its inception, and has been the
Chief Financial Officer of Harvey Incorporated since 1996. Prior
thereto and since before 1996, Mr. Tiefel served in different
capacities with Baird, Kurtz & Dobson, Certified Public
Accountants, most recently as Audit/Tax Supervisor. Mr. Tiefel is
a Certified Public Accountant.
John P. Flahavin has served as a Director of the Company
since its inception. Since 1973, Mr. Flahavin has served as the
President of John Flahavin & Associates, an apparel manufacturer
and representative of designer manufacturers. In addition, during
the 1992 to 1995 period, Mr. Flahavin also served as the
President of Teri Jon N.Y., a dress and suit manufacturer
generating sales volume of approximately $21,000,000.
Theodore C. Skokos has served as a Director of the Company
since its inception. Mr. Skokos is involved with several other
businesses, principally in the telecommunications field, and has
served since 1991 as the President of Skokos Cellular
Communications of Arkansas, Inc., as President of New Hampshire
One Cellular Telephone Company, Inc., and as President of Cardiac
Concepts, Inc., a medical device company. In addition, Mr.
Skokos has been a member of the law firm of Skokos, Bequette &
Billingsley, P.A., since before 1996, and served as that firm's
President during 1993-1994.
Michael Kelly Wooldridge has served as a Director of the
Company since its inception. Mr. Wooldridge has served as the
President of Gibraltar National Insurance Company since 1988.
Section 16(a) Beneficial Ownership Reporting Obligations
Under the federal securities laws, directors, executive
officers, and persons holding more than 10% of the Company's
common stock must report their initial ownership of the common
stock and any changes in that ownership to the SEC. The SEC has
designated specific due dates for these reports and the Company
must identify those persons who did not file these reports when
due. Based solely on the Company's review of copies of the
reports filed with the SEC and written representations of the
directors and executive officers, the Company believes that all
persons subject to reporting filed the required reports on time
in fiscal year 2000.
ITEM 11. Executive Compensation.
None of the Company's executive officers were compensated
for their services in such capacities for the year ended December
31, 2000.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth information regarding
the beneficial ownership of the Company's Common Stock as of the
date hereof by (i) each person known by the Company to be the
beneficial owner of more than five percent of its Common Stock;
(ii) each director; (iii) each executive officer of the Company;
and (iv) all directors and executive officers as a group. Unless
otherwise indicted, each of the following stockholders has sole
voting and investment power with respect to the shares
beneficially owned, except to the extent that such authority is
shared by spouses under applicable law.
Amount and
Name and Address of Nature of Percentage of
Beneficial Owner Beneficial Ownership Outstanding Shares
------------------- -------------------- ------------------
Edward M. Harvey(1)(2) 4,855,200 73.01%
Bonnie P. Harvey(1)(3) 4,855,200 73.01%
Charles Harvey(1)(4) 350,000 5.26%
Deborah Harvey(1)(5) 350,000 5.26%
Jill Pryor(1)(6) 350,000 5.26%
Darby Boyd(1)(7) 350,000 5.26%
Mark Guffin(1)(8) 350,000 5.26%
Diane Miller(1)(9) 44,800 *
All executive officers 4,855,200 73.01%
and directors as a
group (5 persons)
* Denotes less than one percent (1%) of the outstanding
shares.
(1) CONX Capital Corporation and each of such persons may be
reached at 502 North Division Street, Carson City, Nevada,
89703, or 1406 Cantrell Road, Little Rock, Arkansas, 72201.
(2) Includes 350,000 shares held in the name of his spouse,
Bonnie P. Harvey. Edward M. Harvey is the spouse of Bonnie
P. Harvey and the father of Charles Harvey and Deborah
Harvey, and the stepfather of Jill Pryor, Darby Boyd, and
Mark Guffin. Mr. Harvey disclaims beneficial ownership over
any of the shares held by all such persons.
(3) Includes 4,505,200 shares held in the name of her spouse,
Edward M. Harvey. Bonnie P. Harvey is the spouse of Edward
M. Harvey and the stepmother of Charles Harvey and Deborah
Harvey, and the mother of Jill Pryor, Darby Boyd and
Mark Guffin. Mrs. Harvey disclaims beneficial ownership
over any of the shares held by all such persons.
(4) Charles Harvey is the son of Edward M. Harvey.
(5) Deborah Harvey is the daughter of Edward M. Harvey.
(6) Jill Pryor is the daughter of Bonnie Harvey.
(7) Darby Boyd is the daughter of Bonnie Harvey.
(8) Mark Guffin is the son of Bonnie Harvey.
(9) Ms. Miller's address is 18 Masters Place Cove, Maumelle,
Arkansas, 72113.
ITEM 13. Certain Relationships and Related Transactions.
The officers and directors are required to devote only such
time to the Company's affairs as is necessary for the effective
conduct of the Company's business. Each of the directors and
officers have, and may continue to have, occupations and sources
of income other than as a director or officer of the Company.
To date, the Company's lease income has been derived from
one affiliated company, Continental Express SD, Inc., and
Continental Express SD, Inc. has guaranteed each of the Company's
existing credit facilities granted by Navistar Financial
Corporation, Banc One Leasing Corporation, Fleet Capital Leasing
and GE Capital Corporation. Edward M. Harvey, the president and
chairman of the Board of Directors of the Company, owns 67.75% of
the issued and outstanding shares of common stock of the Company,
and is the president and the controlling and majority shareholder
of Continental Express SD, Inc.
Except as set forth above, there have not been any
transactions and currently there are no proposed transactions in
which the amount involved exceeds $60,000 in which any director,
officer, or 5% shareholder is involved during the fiscal year
ended December 31, 2000.
PART IV
ITEM 14. Exhibits, Financial Statements and Reports on Form 8-
K:
(a)(1) Financial Statements - See Index to Financial
Statements on Page F-1 of this Annual Report on
Form 10-K.
(a)(2) Financial Statement Schedules included in Part IV
of this Annual Report on Form 10-K. All schedules
under the accounting regulations of the SEC are
not required under the related instructions or are
inapplicable and thus, have been omitted.
(a)(3) See Exhibits below.
(b) No reports on Form 8-K were filed during the year ended
December 31, 2000.
(c) Exhibits.
3.1* Certificate of Incorporation of CONX Capital
Corporation.
3.2* Bylaws of CONX Capital Corporation.
10.1* CONX Capital Corporation 1998 Stock
Compensation Plan.
__________
* Previously filed as an Exhibit to the CONX
Capital Corporation Form 10 filed August 3,
2000 (File No. 0-31235).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONX Capital Corporation
By:
/s/ Edward M. Harvey
--------------------------
Edward M. Harvey, President
Dated: April 13, 2001
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and all
the dates indicated.
/s/ Edward M. Harvey
--------------------------------------------
Name: Edward M. Harvey
Capacity: Chairman, Director and President
Dated: April 13, 2001
/s/ Todd W. Tiefel
--------------------------------------------
Name: Todd W. Tiefel
Capacity: Secretary, Treasurer and Director
Dated: April 13, 2001
/s/ John P. Flahavin
--------------------------------------------
Name: John P. Flahavin
Capacity: Director
Dated: April 13, 2001
/s/ Theodore C. Skokos
--------------------------------------------
Name: Theodore C. Skokos
Capacity: Director
Dated: April 13, 2001
/s/ Michael Kelly Wooldridge
--------------------------------------------
Name: Michael Kelly Wooldridge
Capacity: Director
Dated: April 13, 2001
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below appoints Todd W. Tiefel, his attorney-in-
fact, with the power of substitution, for him in any and all
capacities, to sign any and all amendments to this Annual Report
on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitues, may do or
cause to be done by virtue hereof.
CONX Capital Corporation
Accountants' Report and Financial Statements
December 31, 2000, 1999 and 1998
CONX CAPITAL CORPORATION
DECEMBER 31, 2000, 1999 and 1998
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT ACCOUNTANTS' REPORT . . . . . . . . . . . . . . . F-1
FINANCIAL STATEMENTS
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Income . . . . . . . . . . . . . . . . . . . F-3
Statements of Changes in Stockholders' Equity . . . . . . F-4
Statements of Cash Flows . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . F-6
Independent Accountants' Report
-------------------------------
Board of Directors
CONX Capital Corporation
Little Rock, Arkansas
We have audited the accompanying balance sheets of CONX CAPITAL
CORPORATION as of December 31, 2000 and 1999, and the related
statements of income, changes in stockholders' equity and cash flows
for each of the years ended December 31, 2000 and 1999, and the period
April 21, 1998 through December 31, 1998. These financial statements
are the responsibility of the Company s management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CONX
CAPITAL CORPORATION as of December 31, 2000 and 1999, and the results
of its operations and its cash flows for each of the years ended
December 31, 2000 and 1999, and the period April 21, 1998 through
December 31, 1998, in conformity with generally accepted accounting
principles.
Baird, Kurtz and Dobson
/s/ Baird, Kurtz and Dobson
Little Rock, Arkansas
February 22, 2001
CONX CAPITAL CORPORATION
BALANCE SHEETS
DECEMBER 31, 2000 and 1999
ASSETS
------
2000 1999
------ ------
Cash $ 227,948 $ 97,203
Accounts receivable - affiliated company 97,478 37,006
Note receivable - affiliated company 125,000 175,565
Equipment, at cost, net of accumulated
depreciation 10,152,605 7,891,979
---------- ----------
$ 10,603,031 $ 8,201,753
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Accounts payable - affiliated
company $ $ 18,000
Accrued expenses 27,968 86,768
Long-term debt 9,031,653 7,435,985
Deferred income taxes 575,982 234,865
--------- ----------
TOTAL LIABILITIES 9,635,603 7,775,618
--------- ---------
STOCKHOLDERS EQUITY
Common stock, $.01 par value,
authorized and issued 7,000,000 70,000 70,000
Retained earnings 915,428 374,135
---------- ---------
985,428 444,135
Treasury stock, at cost,
350,000 shares (18,000) (18,000)
----------- ----------
967,428 426,135
----------- ----------
$10,603,031 $ 8,201,753
========== ==========
See Notes to Financial Statements
F-2
CONX CAPITAL CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
AND THE PERIOD APRIL 21, 1998 THROUGH DECEMBER 31, 1998
2000 1999 1998
---- ---- ----
LEASE INCOME $ 4,326,287 $ 2,894,050 $ 635,550
---------- ---------- ---------
OPERATING EXPENSES
Management fees 60,000 60,000
Depreciation 2,585,711 1,662,136 408,196
Professional fees 31,406 7,894 36,788
Directors fees 20,000 20,000 15,000
Rent 6,000 6,000
Taxes and licenses 11,815 4,385
Other 1,962 1,387 102
Interest expense 735,871 539,815 161,727
--------- -------- ---------
3,452,765 2,301,617 621,813
--------- --------- -------
INCOME FROM OPERATIONS 873,522 592,433 13,737
OTHER INCOME (EXPENSES)
Interest income 8,888 2,830
-------- --------- ---------
INCOME BEFORE INCOME TAXES 882,410 595,263 13,737
PROVISION FOR INCOME TAXES 341,117 229,645 5,220
--------- --------- ---------
NET INCOME $ 541,293 $ 365,618 $ 8,517
========= ========== =========
EARNINGS PER SHARE
Net income $ 541,293 $ 365,618 $ 8,517
Weighted average shares
of common stock 6,650,000 6,825,000 6,825,000
Basic earnings per share $ 0.0814 $ 0.0536 $ 0.0012
========= ========== =========
See Notes to Financial Statements
F-3
CONX CAPITAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
AND THE PERIOD APRIL 21, 1998 THROUGH DECEMBER 31, 1998
Common Retained Treasury
Stock Earnings Stock Total
------ -------- ----- -----
BALANCE, APRIL 21, 1998 $ $ $ $
Issuance of common stock 70,000 70,000
Net income 8,517 8,517
------- ------- ------- ------
BALANCE, DECEMBER 31, 1998 70,000 8,517 78,517
Purchase of treasury
stock (18,000) (18,000)
Net income 365,618 365,618
------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 70,000 374,135 (18,000) 426,135
Net income 541,293 541,293
BALANCE, DECEMBER 31,
2000 $ 70,000 $ 915,428 $ (18,000) $ 967,428
======= ======== ======== ========
See Notes to Financial Statements
F-4
CONX CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
AND THE PERIOD APRIL 21, 1998 THROUGH DECEMBER 31, 1998
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 541,293 $ 365,618 $ 8,517
Items not requiring cash:
Depreciation 2,585,711 1,662,136 408,196
Deferred income taxes 341,117 229,645 5,220
Changes in:
Accounts receivable (60,472) (37,006)
Accounts payable and
accrued expenses (76,800) 61,674 43,094
--------- --------- --------
Net cash provided by
operating activites 3,330,849 2,282,067 465,027
--------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property and
equipment (4,846,336) (4,951,308) (5,011,033)
Issuance of note receivable (125,000) (175,565)
Collection of note
receivable 175,565
--------- --------- ---------
Net cash used in
investing activities (4,795,771) (5,126,873) (5,011,033)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchase of treasury stock (18,000)
Issuance of common stock 70,000
Proceeds from issuance of
long-term debt 4,846,336 4,951,308 5,011,033
Payments on long-term
debt (3,250,669) (2,076,308) (450,018)
---------- ---------- ---------
Net cash provided by
financing activities 1,595,667 2,857,000 4,631,015
---------- --------- ---------
NET INCREASE IN CASH 130,745 12,194 85,009
CASH, BEGINNING OF PERIOD 97,203 85,009
--------- --------- ---------
CASH, END OF PERIOD $ 227,948 $ 97,203 $ 85,009
========= ========== ==========
See Notes to Financial Statements
F-5
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
--------------------
CONX Capital Corporation, a Delaware Corporation, is a specialty
commercial finance company engaged in the business of originating and
securing loans and equipment leases to smaller businesses, with a
primary initial focus on regional trucking companies. The Company was
organized in April 1998 with its headquarters located in Carson City,
Nevada. The Company originates loans and leases through marketing
offices located in Carson City, Nevada, and Little Rock, Arkansas.
For the years ended December 31, 2000 and 1999 and the period ended
December 31, 1998, all lease income was derived from one affiliated
company.
Revenue Recognition
-------------------
The Company recognizes operating lease income on the straight-line
basis over the life of the operating leases. These operating leases
contain provisions for service charges on late payments equal to 2% of
the lease payment or, if less, the highest rate allowed by Nevada law.
The leases also contain excess mileage charges in the amount of five
cents per mile for miles in excess of 150,000 miles determined on an
annual basis. Initial direct costs are expensed over the life of the
corresponding lease in proportion to the recognition of lease income.
At December 31, 2000, the approximate future minimum lease incomes
under these operating leases are as follows:
2000 $ 1,747,375
2001 455,000
---------
$ 2,202,375
==========
Operating Leases
----------------
The Company leases equipment under noncancellable operating leases.
These leases expire in various years through 2001 and convert to a
month to month basis if the Company does not receive notice of
termination. These leases require the lessee to pay all executory
costs (property taxes, maintenance and insurance). Rental income
under these operating leases was $4,326,287, $2,894,050 and $635,550
for the years ended December 31, 2000 and 1999 and the period ended
December 31, 1998, respectively.
F-6
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Equipment under operating leases consists of the following at
December 31, 2000 and 1999:
2000 1999
---- ----
Tractors $ 12,342,754 $ 7,496,417
Trailers 2,465,895 2,465,894
---------- ---------
14,808,649 9,962,311
Less accumulated depreciation 4,656,044 2,070,332
---------- ---------
$ 10,152,605 $ 7,891,979
=========== ==========
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Equipment
---------
Equipment is depreciated over the estimated useful life of each
asset. Annual depreciation is computed using the straight-line
method. Estimated useful lives are as follows:
Tractors 5 years
Trailers 10 years
Income Taxes
------------
Deferred tax liabilities and assets are recognized for the tax
effects of differences between the financial statement and tax bases
of assets and liabilities. A valuation allowance is established to
reduce deferred tax assets if it is more likely than not that a
deferred tax asset will not be realized.
F-7
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 2: LONG-TERM DEBT
2000 1999
---- ----
Notes payable - Navistar Financial
Corporation (A) $ 6,334,717 $ 5,328,485
Note payable - Banc One Leasing
Corporation (B) 1,058,067 1,517,368
Note payable - Fleet Capital
Leasing (C) 452,776 590,132
Note payable - GE Capital 1,186,093
--------- ----------
$ 9,031,653 $ 7,435,985
========== ===========
Aggregate annual maturities of long-term debt at December 31, 2000:
2001 $ 3,730,799
2002 3,407,795
2003 1,558,556
2004 334,503
----------
$ 9,031,653
==========
(A) Due in monthly installments through 2004 ranging from $2,253 to
$53,693; including interest from 6.5% to 7.4%; secured by trucks
and trailers. Notes are guaranteed by Continental Express SD,
Inc. (See Note 3)
(B) Due October 30, 2003; payable $14,892 monthly, including interest
at 7.83%; secured by trailers. Note is guaranteed by
Continental Express SD, Inc. (See Note 3)
(C) Due January 28, 2003; payable $45,367 monthly, including interest
at 6.5%; secured by tractors and trailers. Note is guaranteed
by Continental Express SD, Inc. (See Note 3)
(D) Due January 12, 2004, payable $36,421 monthly, including interest
at 8.26%, secured by tractors. Note is guaranteed by
Continental Express SD, Inc. (See Note 3)
F-8
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 3: RELATED PARTY TRANSACTIONS
The Company leases all of its equipment to Continental Express SD,
Inc., an affiliated company, which has common ownership with the
Company. The lessor is required to pay all executory costs
(maintenance and insurance). The Company uses the management and
office supplies of Harvey, Inc., an affiliated Company, which is owned
by a stockholder. The Company paid Harvey, Inc. $60,000 during 2000
and 1999 for management fees.
At December 31, 1999, the Company had a receivable from Continental
Express SD, Inc. in the amount of $175,565. At December 31, 2000 the
Company had a receivable from Harvey, Inc. in the amount of $125,000.
At December 31, 2000, the approximate future minimum lease income
under these operating leases are as follows:
2000 $ 1,747,375
2001 455,000
----------
$ 2,202,375
==========
NOTE 4: INCOME TAXES
The provision for income taxes includes these components:
2000 1999 1998
---- ---- ----
Taxes currently payable $ $ $
Deferred income taxes 341,117 229,645 5,220
------- ------- -------
$ 341,117 $ 229,645 $5,220
======= ======= =======
F-9
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 4: INCOME TAXES (Continued)
A reconciliation of income tax expense at the statutory rate to the
Company s actual income tax expense is shown below:
2000 1999 1998
---- ---- ----
Computed at the statutory
rate (34%) $ 300,019 $ 202,389 $ 4,670
Increase resulting from:
State income taxes - net
of federal tax benefit 41,098 27,256 550
------- ------- ------
Actual tax provision $ 341,117 $ 229,645 $ 5,220
======== ======== ======
The tax effects of temporary differences related to deferred taxes
shown on the balance sheets were:
2000 1999 1998
---- ---- ----
Deferred tax assets:
Net operating loss
carryforwards (expiring
2020) $ 438,189 $ 276,864 $ 172,937
Deferred tax liabilities:
Accumulated depreciation (1,014,171) (511,729) (178,157)
---------- -------- --------
Net deferred tax liability $ (575,982) $ (234,865) $ 5,220
========== ========= =======
F-10
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 5: EQUIPMENT
Equipment consists of the following at December 31, 2000 and 1999:
2000 1999
---- ----
Tractors $ 12,342,754 $ 7,496,417
Trailers 2,465,895 2,465,894
---------- ---------
14,808,649 9,962,311
Less accumulated depreciation 4,656,044 2,070,332
---------- ---------
$ 10,152,605 $ 7,891,979
=========== ===========
NOTE 6: ADDITIONAL CASH FLOW
INFORMATION
2000 1999 1998
---- ---- ----
Interest paid $ 735,871 $ 539,815 $ 161,727
========= ========= =========
F-11