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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, 2001
Commission File No. 0-31235
CONX CAPITAL CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 62-1736894
------ ----------
(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 __
NO X
---
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, 2001 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, 2001, were $4,298,713.
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 assets of approximately
$8.2 million as of December 31, 2001, 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, 2001, the assets
of the Company had decreased to $8,168,003, consisting primarily
of cash and equipment, consisting of leased tractors and semi
trailers, valued at $6,452,176, net of depreciation. For the
year ended December 31, 2001, net income was $890,329.
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 is considering expanding 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 would 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.
-1-
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 materials handling 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 calendar year 2002.
To the extent that 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. Such a 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 generally anticipated to be 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 leasing 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.
-2-
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 2001.
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 also 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, 2002, 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, 2001.
ITEM 6. Selected Financial Data.
-----------------------
The following sets forth the selected financial data for the
fiscal years ended December 31, 2001, December 31, 2000, December
31, 1999, and December 31, 1998, respectively:
12/31/01 12/31/00 12/31/99 12/31/98
------------ ------------ ------------ ------------
Revenues $4,650,930 $4,326,287 $2,894,050 $ 635,550
Net Income $890,329 $541,293 $365,618 $8,517
Earnings per Share $0.1338 $.0814 $0.0536 $0.0012
Cash Dividend
per Share $0.00 $0.00 $0.00 $0.00
Total Assets $8,168,003 $10,603,031 $8,201,753 $4,687,816
Stockholders
Equity $1,857,757 $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.
-3-
Results of Operation
Fiscal year ended December 31, 2001
Lease income was $4,298,713 for the fiscal year ended
December 31, 2001. As of that date the Company had 126 tractors
and 142 semi-trailers leased to its customer. Operating
expenses (consisting primarily of interest expense and
depreciation) for the fiscal year ended December 31, 2001 were
$3,252,065 and operating expenses as a percentage of lease income
was 75.7%. The improvement in this percentage in 2001 from the
prior year resulted primarily from a reduction in operating
expenses of 5.8% in 2001 from fiscal year 2000 levels. This
improvement was slightly off set by a small reduction in lease
revenues in 2001 from fiscal year 2000 levels.
Income from operations for the fiscal year ended December
31, 2001 was $1,398,965, an increase of 37.6% from fiscal year
2000. This increase in operating income results from a decrease
in operating expenses as well as $352,217 in income realized on a
gain from the sale of equipment. Other income for fiscal year
2001 was $41,970. Income before income taxes for fiscal year
2001 totaled $1,440,835, with a provision for income taxes of
$550,506, resulting in net income for fiscal year 2001 equal to
$890,329. This amount represents an increase of 39.2% over the
net income amount in fiscal year 2000, as a result of the
differences in income noted above.
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. This
increase in lease equipment was the primary component in the
33.1% increase in lease income in fiscal year 2000 over 1999
amounts. 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%. The increase in operating expenses in 2000
resulted from the increased operations and leased equipment and
as a percentage of lease income are essentially unchanged from
1999 levels.
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. The increases
in the operating and net income for 2000 over 1999 amounts
result from the increased revenue and expense amounts discussed
above.
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 customer. 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.
The Company anticipates additional leasing activity with
Continental Express SD, Inc., through the year 2002. During
2002, 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.
-4-
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) over collateralization 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 in the future 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 70 President and Chairman
of the Board of Directors
Todd W. Tiefel 36 Secretary, Treasurer and Director
John P. Flahavin 65 Director
Theodore C. Skokos 54 Director
Michael Kelly Woodridge 43 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 the
following individuals were not timely in the filing of their
initial report of ownership on Form 3 during the past fiscal
year: Edward M. Harvey, Todd W. Tiefel, John P. Flahavin,
Theodore C. Skokosk, Michael Kelly Wooldridge and Bonnie P.
Harvey.
-6-
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, 2001.
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.
-7-
Amount and
Name and Address of Nature of Percentage of
Beneficial Owner Beneficial Outstanding
Ownership Shares
------------------- ---------- -------------
Edward M. Harvey(1)(2) 4,855,200 73.01%
Bonnie P. Harvey(1)(3) 350,000 5.26%
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.
-8-
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, 2001.
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, 2001.
(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).
-9-
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 15, 2002
-10-
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.
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 substitutes, may do
or cause to be done by virtue hereof.
/s/ Edward M. Harvey
------------------------------------
Name: Edward M. Harvey
Capacity: Chairman, Director and
President
(Principal Executive Officer)
Dated: April 15, 2002
/s/ Todd W. Tiefel
--------------------------------------
Name: Todd W. Tiefel
Capacity: Secretary, Treasurer and
Director
(Principal Financial and
Accounting Officer)
Dated: April 15, 2002
/s/ John P. Flahavin
---------------------------------------
Name: John P. Flahavin
Capacity: Director
Dated: April 15, 2002
/s/ Theodore C. Skokos
----------------------------------------
Name: Theodore C. Skokos
Capacity: Director
Dated: April 15, 2002
/s/ Michael Kelly Wooldridge
----------------------------------------
Name: Michael Kelly Wooldridge
Capacity: Director
Dated: April 15, 2002
-11-
CONX Capital Corporation
Accountants' Report and Financial Statements
--------------------------------------------
December 31, 2001, 2000 and 1999
CONX CAPITAL CORPORATION
DECEMBER 31, 2001, 2000 and 1999
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, 2001 and 2000, and the related
statements of income, changes in stockholders' equity and cash
flows for each of the years ended December 31, 2001, 2000 and
1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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, 2001 and 2000, and
the results of its operations and its cash flows for each of the
years ended December 31, 2001, 2000 and 1999, in conformity with
accounting principles generally accepted in the United States of
America.
BKD, LLP
Little Rock, Arkansas
February 22, 2002
CONX Capital Corporation
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
--------------------
Cash $ 888,826 $ 227,948
Accounts receivable - other 87,974 --
Accounts receivable - affiliated company -- 97,478
Note receivable - affiliated company 739,027 125,000
Equipment, at cost, net of accumulated
depreciation 6,452,176 10,152,605
--------- ----------
$8,168,003 $10,603,031
========= ==========
Liabilities and Stockholders' Equity
Liabilities
Accrued expenses $ -- $ 27,968
Long-term debt 5,183,758 9,031,653
Deferred income taxes 1,126,488 575,982
--------- ----------
Total liabilities 6,310,246 9,635,603
--------- ---------
Stockholders' Equity
Common stock, $.01 par value,
authorized and issued 7,000,000
shares 70,000 70,000
Retained earnings 1,805,757 915,428
--------- --------
1,875,757 985,428
Treasury stock, at cost, 350,000
shares (18,000) (18,000)
--------- --------
1,857,757 967,428
--------- --------
$8,168,003 $10,603,031
========= ==========
See Notes to Financial Statements
F-2
CONX Capital Corporation
Statements of Income
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------------------------------
Lease Income $ 4,298,713 $ 4,326,287 $ 2,894,050
Gain on sale of equipment 352,217 -- --
--------- ---------- ----------
4,650,930 4,326,287 2,894,050
--------- --------- ---------
Operating Expenses
Management fees 60,000 60,000 60,000
Depreciation 2,582,008 2,585,711 1,662,136
Professional fees 38,994 31,406 7,894
Directors fees 20,000 20,000 20,000
Rent 6,000 6,000 6,000
Taxes and licenses 12,246 11,815 4,385
Other 3,376 1,962 1,387
Interest expense 529,441 735,871 539,815
--------- --------- ---------
3,252,065 3,452,765 2,301,617
--------- --------- ---------
Operating Income 1,398,865 873,522 592,433
Other Income
Interest income 41,970 8,888 2,830
--------- --------- ---------
Income Before Income Taxes 1,440,835 882,410 595,263
Provision For Income Taxes 550,506 341,117 229,645
--------- --------- ---------
Net Income $ 890,329 $ 541,293 $ 365,618
========= ========= =========
Earnings Per Share
Net income $ 890,329 $ 541,293 $ 365,618
Weighted average shares of
common stock 6,650,000 6,650,000 6,825,000
--------- --------- ---------
Basic earnings per share $ 0.1338 $ 0.0814 $ 0.0536
========= ========= =========
See Notes to Financial Statements
F-3
CONX Capital Corporation
Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 2001, 2000 and 1999
Common Retained Treasury
Stock Earnings Stock Total
--------------------------------------------
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
Net income -- 890,329 -- 890,329
------- ------- ------- -------
Balance, December 31, 2001 $ 70,000 $1,805,757 $ (18,000) $1,857,757
See Notes to Financial Statements
F-4
CONX Capital Corporation
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------------------------------
From Operating Activities
Net income $ 890,329 $ 541,293 $ 365,618
Items not requiring
(providing) cash
Depreciation 2,582,008 2,585,711 1,662,136
Deferred income taxes 550,506 341,117 229,645
Gain on sale of equipment (352,217) -- --
Changes in
Accounts receivable 9,504 (60,472) (37,006)
Accounts payable and accrued
expenses (27,968) (76,800) 61,674
--------- --------- ---------
Net cash provided by
operating activities 3,652,162 3,330,849 2,282,067
--------- --------- ---------
From Investing Activities
Proceeds from sale of
equipment 1,470,638 -- --
Purchase of property and
equipment -- (4,846,336) (4,951,308)
Issuance of note receivable (739,027) (125,000) (175,565)
Collection of note
receivable 125,000 175,565 --
--------- --------- ---------
Net cash provided by (used in)
investing activities 856,611 (4,795,771) (5,126,873)
--------- --------- ---------
From Financing Activities
Purchase of treasury stock -- -- (18,000)
Proceeds from issuance of
long-term debt 428,102 4,846,336 4,951,308
Payments on long-term debt (4,275,997) (3,250,669) (2,076,308)
--------- --------- ---------
Net cash provided by
(used in) financing
activities (3,847,895) 1,595,667 2,857,000
--------- --------- ---------
Net Increase in Cash 660,878 130,745 12,194
Cash, Beginning of Year 227,948 97,203 85,009
--------- --------- ---------
Cash, End of Year $ 888,826 $ 227,948 $ 97,203
========== ========== =========
Supplemental Cash Flows
Information
Interest paid $ 529,441 $ 735,871 $ 539,815
See Notes to Financial Statements
F-5
CONX Capital Corporation
Notes to Financial Statements
December 31, 2001 and 2000
Note 1: Nature of Operations and Summary of Significant
Accounting Policies
Nature of Operations
CONX Capital Corporation, a Delaware Corporation, ("Company")
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, 2001, 2000
and 1999, all lease income was derived from one affiliated
company.
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 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.
Property and Equipment
Property and equipment are depreciated over the estimated
useful life of each asset. Leasehold improvements are
amortized over the shorter of the lease term or the estimated
useful lives of the improvements. Annual depreciation is
primarily computed using accelerated methods.
Income Taxes
Deferred tax liabilities and assets are recognized for 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
than not that a deferred tax asset will not be realized.
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, 2001, the approximate future minimum lease
incomes under these operating leases are as follows:
2002 $ 445,000
=========
F-6
CONX Capital Corporation
Notes to Financial Statements
December 31, 2001 and 2000
Earnings Per Share
Earnings per share have been computed based upon the
weighted-average common shares outstanding during each year.
Operating Leases
The Company leases equipment under noncancellable operating
leases. These leases expire in 2002 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 $4,298,713,
$4,326,287 and $2,894,050 for the years ended December 31,
2001, 2000 and 1999, respectively.
Equipment under operating leases consists of the following
at December 31, 2001 and 2000:
2001 2000
----------------------
Tractors $ 9,077,742 $ 12,342,754
Trailers 2,465,895 2,465,895
----------- -----------
11,543,637 14,808,649
Less accumulated
depreciation 5,091,461 4,656,044
---------- ----------
$ 6,452,176 $ 10,152,605
========== ===========
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.
Note 2: Long-term Debt
2001 2000
-----------------------
Notes payable - Navistar Financial
Corporaton (A) $ 3,053,654 $ 6,334,717
Note payable - Banc One Leasing
Corporation (B) 568,005 1,058,067
Note payable - Fleet Capital Leasing (C) 304,271 452,776
Note payable - GE Capital (D) 1,257,828 1,186,093
--------- ---------
$ 5,183,758 $ 9,031,653
========== ==========
F-7
CONX Capital Corporation
Notes to Financial Statements
December 31, 2001 and 2000
(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 December 1, 2005; payable $39,854 monthly, including
variable interest rates, 5.58% to 5.92% at December 31,
2001; secured by tractors. Note is guaranteed by
Continental Express SD, Inc. (See Note 3)
Aggregate annual maturities of long-term debt at December 31, 2001:
2002 $ 2,904,409
2003 1,518,126
2004 531,525
2005 229,698
----------
$ 5,183,758
===========
Note 3: Income Taxes
The provision for income taxes includes these components:
2001 2000 1999
-----------------------------------
Taxes currently payable $ -- $ -- $ --
Deferred income taxes 550,506 341,117 229,645
-------- --------- ---------
$ 550,506 $ 341,117 $ 229,645
========= ========= =========
A reconciliation of income tax expense at the statutory rate
to the Company's actual income tax expense is shown below:
2001 2000 1999
------------------------------------
Computed at the statutory
rate (34%) $ 489,884 $ 300,019 $ 202,389
Increase resulting from:
State income taxes net of
federal tax benefit 60,622 41,098 27,256
--------- --------- ---------
Actual tax provision $ 550,506 $ 341,117 $ 229,645
========= ========= =========
F-8
CONX Capital Corporation
Notes to Financial Statements
December 31, 2001 and 2000
The tax effects of temporary differences related to deferred
taxes shown on the balance sheets were:
2001 2000 1999
-------------------------------------
Deferred tax assets:
Net operating loss
carryforwards (expiring
2020) $ 141,516 $ 438,189 $ 276,864
Deferred tax liabilities:
Accumulated depreciation (1,268,004) (1,014,171) (511,729)
---------- ---------- ---------
Net deferred tax liability $(1,126,488) $ (575,982) $ (234,865)
========== ========== ==========
Note 4: Equipment
Equipment consists of the following at December 31, 2001 and 2000:
2001 2000
----------------------------
Tractors $ 9,077,742 $ 12,342,754
Trailers 2,465,895 2,465,895
---------- ----------
11,543,637 14,808,649
Less accumulated depreciation 5,091,461 4,656,044
---------- ----------
$ 6,452,176 $ 10,152,605
========== ==========
Note 5: 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 (property taxes, 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 2001, 2000 and 1999 for management fees.
At December 31, 2001 and 2000, the Company had a receivable
from Harvey, Inc. in the amount of $739,027 and $125,000.
At December 31, 2001, the approximate future minimum lease
income under these operating leases are as follows:
2002 $ 445,000
=========
F-9