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.
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.
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.
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.
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.
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.
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.
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, 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.
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.
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.
ITEM 9. Changes In and Disagreements with Accountants on ------------------------------------------------------ Accounting and Financial Disclosure. -----------------------------------
None.
PART III
ITEM 10.
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.
ITEM 11.
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.
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 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.
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, 2001.
PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statements and Reports on Form 8-K: -------------------------------------------------------
(a)(1) Financial Statements - See Index to Financial Statements on Page 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).
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
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
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 . . . . . . . . . . . . . .
FINANCIAL STATEMENTS
Balance Sheets . . . . . . . . . . . . . . . . . . . . .
Statements of Income . . . . . . . . . . . . . . . . . .
Statements of Changes in Stockholders' Equity . . . . .
Statements of Cash Flows . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . .
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
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
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
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
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 =========
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 ========== ==========
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 ========= ========= =========
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 =========