SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NUMBER 3 TO FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
CONX CAPITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 62-1736894
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
502 North Division Street, Carson City, Nevada, 89703
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (702) 886-0713
Securities to be Registered Pursuant to Section 12(b) of the Act:
None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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CONX CAPITAL CORPORATION
FORM 10
TABLE OF CONTENTS
ITEM No. Page
-------- ----
REASONS FOR FILING . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . 2
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . 7
ITEM 2. FINANCIAL INFORMATION . . . . . . . . . . 26
ITEM 3. PROPERTIES . . . . . . . . . . . . . . . 29
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . 30
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS . . . . 31
ITEM 6. EXECUTIVE COMPENSATION . . . . . . . . . 34
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . 34
ITEM 8. LEGAL PROCEEDINGS . . . . . . . . . . . . 34
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . 35
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES . 35
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO
BE REGISTERED . . . . . . . . . . . . . . 35
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ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. 37
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA . . . . . . . . . . . . . . . . . . . 39
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . 39
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS . . . . 40
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CONX CAPITAL CORPORATION
Common Stock
FORWARD LOOKING STATEMENTS
The Company's management cautions readers that certain
important factors may affect the Company's actual results and
could cause such results to differ materially from any forward-
looking statements that may be deemed to have been made in this
Form 10 or that are otherwise made by or on behalf of the
Company. For this purpose, any statements contained in the Form
10 that are not statements of historical fact may be deemed to
be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," "plans," or
"continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking
statements. Factors that may affect the Company's results
include, but are not limited to, the Company's limited operating
history, its past reliance on one affiliate of its controlling
shareholder as its sole customer, its ability to attract other
customers for its leasing and financing activities, sources of
additional financing to meet its needs and competition. Any
forward-looking statements in this report should be evaluated in
light of the important risk factors contained in this
registration statement. The Company is also subject to other
risks detailed herein or that will be set forth from time to
time in the Company's filings with the Commission. FOR A
COMPLETE UNDERSTANDING OF SUCH FACTORS, THIS ENTIRE DOCUMENT,
INCLUDING THE FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES,
SHOULD BE READ IN ITS ENTIRETY
The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various
factors, including regional and national economic conditions,
substantial changes in levels of market interest rates, credit
and other risks of lending and investment activities and
competitive and regulatory factors, could affect the Company's
financial performance and could cause the Company's actual
results for future periods to differ materially from those
anticipated or projected. The Company shall update any
forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such
statements, if any, as may be necessary to make the required
statements, in the light of the circumstances under which they
are made not misleading.
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REASONS FOR FILING THIS REGISTRATION STATEMENT
At this time there are no shares of the Company's common
stock or other equity of the Company that are being, or have
been publicly proposed to be, publicly offered by the Company.
The Company does not anticipate any public offering of its
equity over the next twelve months. The Company is filing this
Registration Statement for the purpose of becoming a reporting
company under the Securities Act of 1933, with the belief that
being subject to the reporting requirements of the act will
benefit the Company in obtaining additional sources of financing
for its operations and provide greater flexibility for the
financing of its future operations. By filing this
Registration Statement and becoming a reporting company, the
Company also believes that future filings for proposed public
offerings of equity can be more efficiently handled and thereby
save the Company delays and expense at the time of such
offering.
RISK FACTORS
Although there are no shares of the Company's common stock or
other equity of the Company that are being, or have been
publicly proposed to be, publicly offered by the Company, in the
future prospective investors should consider carefully among
other factors, the risk factors and other special considerations
relating to the Company and the securities described in this
Registration Statement.
Limited Operating History of the Company
Limitation on Liability of Officers and Directors of the Company
Dependence on Growth of Affiliated Party
Reliance on Third Party Financing
Failure to Obtain Customer Commitments
Competition
Capital Expenditures, Need for Additional Financing
Management, Recruitment of Qualified Employees
Dependence on Leased Personnel
No Foreseeable Dividend
Absence of Registration under Applicable Securities Laws
Availability of Exemption from Registration
Ability to Implement Business Strategy
Future Capital Needs and Uncertainty of Additional Funding
Market Acceptance
Uncertainty of Future Financial Results, Fluctuations in
Operating Results
Lack of Marketing Experience
Marketing Efforts; Limited Sales Force
Market for Common Stock
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Limited Operating History of the Company
The Company has a limited operating history since
commencing its operations in 1998. All of the business of the
Company to date has been conducted with one customer which is an
affiliate under common control by the Company's majority
stockholder.
Speculative Investment
The business objectives of the Company must be considered
speculative, and there is no assurance the Company will satisfy
those objectives. No assurance can be given that the
shareholders of the Company will realize a return on their
purchase of the Company's stock, or the shareholders of the
Company will not lose their investments in the Company
completely. For this reason, each prospective purchaser of
common stock should read this Registration Statement carefully
and should consult with that purchaser's attorney, business
advisor, or investment advisor.
Limitation on Liability of Officers and Directors of the Company
The Articles of Incorporation of the Company includes
provisions eliminating or limiting the personal liability of the
officers and directors of the Company to the Company and its
shareholders for damages for breach of fiduciary duty as a
director or officer. Accordingly, the officers and directors of
the Company may have no liability to the shareholders of the
Company for any mistakes or errors of judgment or for any act of
omission, unless such act or omission involves intentional
misconduct, fraud, or a knowing violation of law or results in
unlawful distributions to the shareholders of the Company.
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Reliance on Third Party Financing
The Company currently relies on third party financing to
provide the funds necessary to purchase the equipment leased to
the our customers. Currently, financing is provided by a
limited number of lenders. Changes in the sources, pricing and
other terms and conditions of such financing could have a
material adverse affect on our business, financial condition,
operating results and future prospects with our customers.
Failure to Obtain Customer Commitments
The success of the Company depends on its ability to
attract and retain quality customers. Also, the success is
dependent upon the ability to reach favorable lease agreements
with customers on a recurring basis to replace expired and
terminated leases and add new leases for additional equipment.
The ability to attract and retain customers and third party
lenders to finance the equipment purchases requested by our
customers will depend upon success in marketing services to new
and existing customers, pricing that is provided by us to its
customers, the pricing that we is able to obtain from third
party lenders, the rate at which we are is able to add leases,
the quality of the customer services provided, the lack of
interruption in customer service and other factors that
generally impact the transportation industry.
Competition
The revenues of the Company are dependent upon the pricing
of the financing provided to our customers in the form of leases
or, in the future, asset based loans. Competition could reduce
the rates that we are able to charge under our leases and
decrease the interest rate margin between the rate charged our
customer and the cost of funds we are required to pay our
lenders. Additionally, many of our competitors are larger
financing companies, such as Ryder, PACLEASE, General Electric
Capital Corporation, Daimler Chrysler, GMAC and other vendor
finance companies, as well as traditional lending sources such
as banks. All of whom have significantly more financial
resources than we do.
Capital Expenditures, Need For Additional Capital
Continued expansion of our business depends on our ability
to the needs and demands of our customers. Funds needed to
expand the leasing activities of the Company and expand its
business into more traditional asset based lending will need to
be provided from cash flow from operations or additional debt
financing or additional capital from investors. Funding for
additional capital would be through debt, raising of additional
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capital which may not be available on terms acceptable to
Company or at all. If we cannot raise additional funds through
debt or equity offerings, we may be forced to restrict the
expansion and growth of our activities, may not be able to meet
the demands of our customers and could face severe limitations
or restrictions on our abilities to operate in the future.
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Dependence on Key Personnel
The future success of the Company will depend on the
services of key personnel and, additionally, their ability to
identify, hire and retain additional qualified personnel. There
can be no assurance that the Company will be able to attract and
retain personnel necessary for the development of the business
of the Company. Failure to attract and retain key personnel
could have a material adverse effect on the Company.
No Foreseeable Dividend
Management of the Company does not anticipate paying
dividends on its common stock in the foreseeable future, but,
rather, the Company plans to retain earnings, if any, for the
operation and expansion of the business of the Company.
Absence of Registration under Applicable Securities Laws
The Company's common stock has not been registered under
the Securities Act of 1934, as amended (the Securities Act )
or the security laws of the jurisdictions in which it is
proposed to be offered and sold in reliance upon certain
claimed exemptions therefrom. The claimed exemption from
Federal registration is complex, and it is often difficult to
determine that its terms have been fully complied with. In
addition, exemption from registration under state security laws
frequently depend upon the availability of exemptions from
Federal registration. If for any reason the Company is subject
to civil liability, including an investor's right of
rescission, and/or legal expense of defending an action or
proceeding challenging the availability to the Company of such
exemptions, the business of the Company could be materially
adversely affected.
5
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Restrictions on Transfer
The Company's common stock has not been registered under
the Securities Act or under the securities laws of any state,
and may not be resold unless it is subsequently registered
under the Securities Act, or sold pursuant to an exemption
under the Securities Act. The Company is under no obligation,
and investors have no right to require the Company to register
any shares of common stock for resale, and the Company does not
plan or anticipate that it will ever register the shares for
resale. There can be no assurance that any exemption from
registration will ever be available to the purchasers of any
shares of the Company's common stock. There is no existing
public or other market for shares, and there can be no
assurance that any such market will ever develop or, if
developed, will be sustained. As a result of the foregoing,
stockholders may not be able to liquidate any portion of their
investment in the event of an emergency or for any other
reason. In addition, an investor will be required to represent
he or she is acquiring shares of the Company's stock for
investment and not for future distribution.
Ability to Implement Business Strategy
Although we intend to pursue a strategy of marketing lease
financings and asset based loans, implementation of this
strategy will depend in large part on the ability to: (i)
establish a significant customer base and maintain favorable
relationships with those customers; (ii) effectively introduce
acceptable products to the customers; (iii) obtain adequate
financing on favorable terms to fund the business development;
(iv) maintain appropriate procedures, credit policies and
systems; and (v) continue to operate with increasing
competition. The inability to obtain or maintain any or all of
these factors could impair the ability to successfully
implement the business strategy, which could have a material
adverse effect on our results of operations and financial
condition.
Future Capital Needs and Uncertainty of Additional Funding
We may require additional cash to implement our business
strategies, including cash for: (i) payment of increased
operating expenses; (ii) financing the purchase of equipment to
be leased to our customers; and (iii) further implementation of
our asset based lending strategies. Such additional capital may
6
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be raised by additional public or private financing, as well as
borrowings and other resources. To the extent that additional
capital is received by the Company by the sale of equity or
equity-related securities, the issuance of such securities may
result in dilution to the Company's existing shareholders.
There can be no assurance that additional funding will be
available on favorable terms, if at all. If adequate funds are
not available, we may be required to curtail operations
significantly or to obtain funds through entering into
arrangements with collaborative partners that we might not
otherwise agree to. The inability of the Company to access the
capital markets or obtain acceptable financing could have a
material adverse effect on the results of operations and
financial condition of the Company.
Market Acceptance
There can be no assurance that the leasing products
developed by the Company or any other financial product
subsequently developed, will achieve a significant degree of
market acceptance, and that acceptance, if achieved, will be
sustained for any significant period or that lease and loan
terms will be sufficient (or substitute products developed) to
permit recovery of start-up and other associated costs.
Uncertainty of Future Financial Results, Fluctuations in
Operating Results
Results of operations may vary from period to period due
to a variety of factors, primarily including changes in
interest rates and the impact of inflation on the cost of funds
borrowed by the Company.
Lack of Lending Experience
The Company has limited experience in marketing of leasing
transactions and has, to date, made no asset based loans;
however, its key personnel have significant experience in
leasing and lending activities contemplated by the Company.
Marketing Efforts; Limited Sales Force
We may use only a very limited number of salespeople in
the markets. There can be no assurance that we will be able to
successfully establish other methods of marketing and sales
should it become necessary or desirable in the future. Current
marketing activities are performed by leased personnel and only
one customer under common control with the Company.
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Market for Common Stock
There is not an established trading market for our common
stock. It is not anticipated that our stock will be listed for
trading on the OTCBB or any exchange and there can be no
assurance that this will ever be done or the timing in which
such listing will be accomplished. Additionally, the transfer
of the shares issued in this offering are restricted in
accordance with applicable state and federal securities laws.
ITEM 1. BUSINESS
General
CONX Capital Corporation, a Delaware corporation (the
"Company" or "CONX"), with consolidated assets of approximately
$8.2 million as of December 31, 1999, is a specialty commercial
finance company engaged currently 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 September 30, 2000, the net
assets of the company had increased to approximately
$11,260,520, consisting primarily of cash and equipement,
consisting of leased tractors and semi trailers, valued at
$108,363,803, net of depreciation. For the year ended December
31, 1999, net income was $365,618 and for the nine month period
ending September 30, 2000, net income increased to $387,001.
The Company was organized in April 1998 with its
headquarters located in Carson City, Nevada. The Company
currently originates long-term fixed and variable rate lease
products with 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 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.
Carson City, Nevada has been the registered office of the
Company since its incorporation.
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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 its
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 employess 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. Furthermore, to date there have been no
formal meetings of the Board of Directors of the Company.
Actions requiring approval of the Board of Directors have
historically been made by consent action in lieu of a regular
or special meeting in accordance with Nevada state corporate
law.
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To date, the Company's lease income has been derived
solely from one affiliated company, Continental Express SD,
Inc. At this time, the Company intends to focus on expanding
leasing activities within the trucking industry and potentially
expand its equipment leasing activities into the materials
handling industry associated with the trucking and
transportation industry. Over the next tweleve months, the
Company expects to add additional tractors and semi-trailers
to its leasing fleet and expand its leasing activities with
Continental Express SD, Inc. and other trucking companies
meeting the Company's leasing requirments. No significant
expansion of the scope of the Company's lending activities is
expected before the end of the calendar year 2002. However,
over the next twenty-four months as the Company expands
its lending and leasing activities, the focus will be to
provide funding to industries that have been historically
underserved by banks and other traditional sources of
financing. This focus will require the Company to develop
specific industry expertise in the sectors which it will serve
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in order to provide individualized financial solutions for its
borrowers. The Company believes that its industry expertise in
the trucking industry, combined with the ability to be
responsive to borrowers, 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.
History
The Company was initially formed to offer loans and leases
to affiliated entities and to experienced, similarly situated
borrowers, and to expand into other commercial financing
sectors. Prior to the Company's formation, Harvey Incorporated,
Continental Express, Inc., Continental Express SD, Inc., and
Dallas Carriers Corporation, all affiliates of the Company by
virtue of being under the common control of the Company's
majority stockholder, Edward M. Harvey, and members of his
family, financed tractor and trailer truck equipment
acquisitions and leases through financings made by Navistar
Financial Corporation, General Electric Capital Corporation,
Associates TransCapital, Heller Financial, Inc. and Green Tree
Financial Corp. To date, the Company's only activities have
been leases of tractor and trailer truck equipment to one
affiliated company, Continental Express SD, Inc.
Business Strategy
The Company's goal is to become a leading national small
business lender in each of its target markets. The Company's
growth and operating strategy is based on the following key
elements:
Growth in the Trucking Equipment Industry. The Company
plans to concentrate in the tractor and trailer truck equipment
financing industry through focused product development,
customer service and support. The Company will form specialized
teams to assess customer needs, generate customer loyalty and
enhance service and support. Management believes that its
industry experience and position, relationships with borrowers,
and expertise within this sector will assist the Company in
increasing its market share.
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Controlled Expansion into New Sectors. Management
believes that substantial opportunities exist to extend the
Company's expertise into other business sectors. Expansion
and growth into new sectors will be gradual and is not likely
to significantly increase in the next tweny-four months. The
Company believes that its experience in lending to trucking
equipment operators has allowed it to develop a template for
efficiently originating and servicing loans and leases in
other industry sectors. The next industry that the Company
anticipates expanding its leasing activities into is the
materials handling and heavy industrial equipment industry. This
will likely involve the leasing of lift trucks ("fork lifts")
and other materials handling equipment associated with the
trucking and transportaion industry. The Company intends to
carefully review industry data, seek business sectors with
a combination of large funding requirements, proven cash flow
generating capabilities, standardized operations, a scarcity of
long-term, fixed rate funding sources and characteristics
attractive to secondary market investors before expanding its
activities into any new sectors.
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Maintenance of Credit Quality. The Company intends to
maintain extremely low delinquency and loss experience rates
due to lending to experienced operators, its detailed industry
knowledge, active oversight of its servicing portfolio, and
strict underwriting criteria.
Efficient Secondary Market Execution. The Company is
committed to finding and maintaining an effective secondary
market for the sale and securitization of the loans and leases
that it originates and sells.
Diversification of Revenue Sources. Management is
committed to developing a diversified revenue base to reduce
revenue volatility and enhance profitability. Currently, the
sole source of revenue to the Company is from leases with an
affiliate of the controlling shareholder, Continental Express
SD, Inc. The Company will continually monitor and adjust its
loan and lease products and securitization structures to
improve the stability of its cash flows. Revenue sources are
anticipated to include loan and lease origination points and
fees, interest income earned prior to the sale of the loans and
leases, whole loan and lease sale profits, securitization
profits, loan and lease servicing fees and equity investment
returns.
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Loan and Lease Products
The Company intends to offer loan and lease products and
provide other services in the Business Finance Lending sector.
The Company, in the future, may expand into the consumer
lending and advisory and investment services sectors.
Business Finance Lending. The Company's business finance
lending activities are anticipated to include commercial
equipment leasing, asset based lending, and loan
participations.
The Company is currently in the business of leasing
equipment, including truck and trailer equipment, and may
possibly lease office equipment machines, including copying,
data processing, communication, printing and manufacturing
equipment, exclusively to business users. Initial lease terms
for truck and trailer equipment typically will range from 24
months to 60 months. We only commit to purchase this equipment
only when we have a signed lease with a lessee who satisfies
our credit and funding requirements. Substantially all the
leases written by CONX will be full-payout ("direct financing")
leases that allow CONX to sell or re-lease the equipment upon
termination of the lease. Since inception, the Company has
entered into the following financing and related lease
transactions for new equipment purchased for the benefit of the
lessee, as follows:
(i) on June 9, 1998, the Company financed the
purchase of 25 truck tractors from Navistar Financial
Corporation over a 48-month term at an interest rate of
7.4% per annum, and leased said truck tractors to its
affiliate, Continental Express SD, Inc., on a net lease
basis, for a 24-month term at a monthly rental rate per
truck tractor of $1,775, and subject to late charges and
service charges;
(ii) on June 16, 1998, the Company financed the
purchase of 32 additional truck tractors from Navistar
Financial Corporation over a 48-month term at an interest
rate of 7.4% per annum, and leased said truck tractors to
its affiliate, Continental Express SD, Inc., on a net
lease basis, for a 24-month term at a monthly rental rate
per truck tractor of $1,775, and subject to late charges
and service charges;
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(iii) on September 16, 1998, the Company
financed the purchase of five trailers from Navistar
Financial Corporation over a 48-month term at an interest
rate of 7.1% per annum, and leased said trailers to its
affiliate, Continental Express SD, Inc., on a net lease
basis, for a 24-month term at a monthly rental rate per
trailer of $475, and subject to late charges and service
charges;
(iv) on September 16, 1998, the Company
financed the purchase of five additional trailers from
Navistar Financial Corporation over a 48-month term at an
interest rate of 7.1% per annum, and leased said trailers
to its affiliate, Continental Express SD, Inc., on a net
lease basis, for a 24-month term at a monthly rental rate
per trailer of $475, and subject to late charges and
service charges;
(v) on September 29, 1998, the Company
financed the purchase of 10 additional trailers from
Navistar Financial Corporation over a 48-month term at
an interest rate of 7% per annum, and leased said
trailers to its affiliate, Continental Express SD, Inc.,
on a net lease basis, for a 24-month term at a monthly
rental rate per trailer of $475, and subject to late
charges and service charges;
(vi) on December 14, 1998, the Company
financed the purchase of 40 additional trailers from
Navistar Financial Corporation over a 48-month term at
an interest rate of 6.5% per annum, and leased said
trailers to its affiliate, Continental Express SD, Inc.,
on a net lease basis, for a 24-month term at a monthly
rental rate per trailer of $475, and subject to late
charges and service charges;
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(vii) on January 5, 1999, the Company
financed the purchase of 17 additional truck tractors
from Navistar Financial Corporation over a 48-month term
at an interest rate of 6.5% per annum, and leased said
truck tractors to its affiliate, Continental Express SD,
Inc., on a net lease basis, for a 24-month term at a
monthly rental rate per truck tractor of $1,825, and
subject to late charges and service charges;
(viii) on January 13, 1999, the Company
financed the purchase of 18 additional truck tractors
from Navistar Financial Corporation over a 48-month term
at an interest rate of 6.5% per annum, and leased said
truck tractors to its affiliate, Continental Express SD,
Inc., on a net lease basis, for a 24-month term at a
monthly rental rate per truck tractor of $1,825, and
subject to late charges and service charges;
(ix> on January 25, 1999, the Company financed
the purchase of 16 additional truck tractors and 48
additional trailers from Banc One Leasing Corporation
over a 48-month term at an interest rate of 6.5% per
annum, and leased said tractors and trailers to its
affiliate, Continental Express SD, Inc., on a net lease
basis, for a 24-month term at a monthly rental rate of
$1,825 and $475 per truck tractor and trailer,
respectively, and subject to late charges and service
charges;
(x) on October 20, 1999, the Company
financed the purchase of 34 additional trailers from
Fleet Capital Leasing over a 48-month term at an interest
rate of 7.83%, and leased said trailers to its
affiliate, Continental Express SD, Inc., on a net lease
basis, for a 24-month term at a monthly rental rate
of $475 per trailer, and subject to late charges and
service charges;
(xi) on January 12, 2000, the Company financed
the purchase of 20 additional truck tractors from GE
Capital Corporation over a 48-month term at an interest
rate of 8.26%, and leased said tractors to its
affiliate, Continental Express SD, Inc., on a net lease
basis, for a 24-month term at a monthly rental rate of
$1,875 per tractor, and subject to late charges and
service charges;
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(xii) on February 7, 2000, the Company financed
the purchase of 20 additional truck tractors from
Navistar Financial Corporation over a 48-month term at an
interest rate of 8.24%, and leased said tractors to its
affiliate, Continental Express SD, Inc., on a net lease
basis, for a 24-month term at a monthly rental rate of
$1,875 per tractor, and subject to late charges and
service charges; and
(xiii) on May 18, 2000, the Company financed the
purchase of 25 truck tractors from Navistar Financial
Corporation over a 48-month term at an interest rate of
8.43% per annum, and leased said truck tractors to its
affiliate, Continental Express SD, Inc., on a net lease
basis, for a 24-month term at a monthly rental rate per
truck tractor of $1,900, and subject to late charges and
service charges.
In the future, the Company also may purchase small
portfolios of existing equipment leases from brokers. These
portfolios will be evaluated on an individual basis according to
the Company's established credit policy. The Company believes
that these acquisitions will allow CONX to grow with greater
efficiency than usual at a level of decreased risk due to the
portfolio aging that has occurred on the books of the
originating broker. Purchasing portfolios would permit CONX to
focus due diligence and review procedures on an existing
portfolio where the owner has previously done the initial credit
review of the borrower and made a decision to proceed. Also,
due to CONX s limited personnel there is an opportunity to
purchase multiple portfolios from a single source and reduce
administrative and marketing costs and delays in expanding the
Company's loan and lease portfolio. Also, combining multiple
portfolios to create a broader more diverse portfolio could
facilitate and enhance CONX s ability to create lease
securitization instruments in the future
Upon expiration of the initial lease terms of its
direct-financing leases, CONX based on management s prior
experience in the trucking industry expects, on average, to
realize at least the "residual value" at which the
leased equipment is carried on CONX's books. For example, CONX
expects the leased equipment to be sold or re-leased at the end
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<PAGE>
of the initial lease at a price in excess of its depreciated
book value. CONX's ability to recover the recorded estimated
residual value depends on the accuracy of initial estimates of
the equipment's useful life, the market conditions for used
equipment when leases expire, and the effectiveness of CONX's
program for re-leasing or otherwise disposing of leased
equipment. Residual recovery, however, is not required for CONX
to achieve a profitable return on its investment.
CONX will use a non-cancelable lease, the terms and
conditions of which vary only slightly from transaction to
transaction. In substantially all of the leases, lessees are
obligated to: (i) remit all rents due, regardless of the
performance of the equipment, (ii) operate the equipment in a
careful and proper manner in compliance with governmental rules
and regulations, (iii) maintain and service the equipment, (iv)
insure the equipment against casualty losses and public
liability, bodily injury and property damage and (v) pay
directly, or reimburse CONX for, any taxes associated with the
equipment, its use, possession or lease, except those relating
to net income derived by CONX therefrom.
The lease will provide that CONX, in the event of a default
by a lessee, may declare the entire unpaid balance of rentals
due and payable immediately, and may seize and remove the
equipment for subsequent sale, re-lease or other disposition.
Underwriting. CONX maintains written credit policies that
CONX believes are prudent and customary within the lease finance
industry. Such policies form the basis for CONX's standardized
lease forms and approval processes. On occasion, CONX may make
exceptions to its written credit policy for lessees with whom
CONX has had past positive experience. In general, CONX's credit
policies encourage leasing of income-generating equipment.
Within these guidelines, there are few specific equipment or
industry prohibitions.
Under the Company's anticipated underwriting guidelines,
each loan will only be originated after a review of the
following criteria: (i) the applicant's ability to repay the
loan, (ii) the adequacy of the cash flow of the borrower's
operations, and (iii) the real and tangible personal property
that serves as collateral for such loan. The Company shall
create an underwriting model which incorporates historical
operating results of the borrower and compares them to
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<PAGE>
to industry statistics. The model helps outline the loan
proposal to fit the approval guidelines. Loan officers
input data provided by potential borrowers into the underwriting
model and determine as to whether or not a loan would qualify
under the Company's underwriting guidelines before submission to
the credit group. This pre-screening process allows for
documentation once a loan is accepted for underwriting. The
Company's loan originations typically range in size from $15,000
to $75,000 for each truck equipment and trailer loan or lease.
To date, the Company's sole borrower/lessee has been an
affiliated company, Continental Express SD, Inc. The
majority of borrowers/lessees are anticipated to be multiple
unit operators in the trucking industry. At this time,
the Company has not established limitations on the amount of
loans or financing to be provided to any single or affiliated
group of borrowers.
Marketing. CONX currently markets its equipment lease
products to affiliated companies using its leased personnel. In
the future, as its leasing activites expand CONX intends to
recruit sales personnel as needed to expand its sales force
and solicit end user customers and vendors to market their
equipment lease transactions and include more vendors. The sales
force will also call on professional equipment lease brokers
known to CONX to solicit these professionals to send their
lease transactions to CONX. The Company does not anticipate
hiring full time sales personnel during the next twenty-four
months.
Asset Based Lending. The Company anticipates that it may
expand its activities over the next twenty-four months and act
as a senior secured asset-based lender with initial lending
activities in the Southeastern United States with an office
located in Little Rock, Arkansas. The Company will look to
provide asset-based lending to small-to medium-sized businesses
with annual revenues ranging from approximately $1 million to
$100 million. The Company believes that CONX's directors and
management s relationships with venture capital investors and
its industry expertise would contribute to CONX's ability to
distinguish itself from its competitors and grow its lending
relationships.
The Company believes that CONX's loan pricing should be
competitive with pricing charged by other commercial finance
companies. In addition, CONX will attempt to be flexible in the
structuring of its revolving credit lines and to provide prompt
service in order to gain an advantage over its competitors. When
CONX competes against more traditional lenders, it will likely
being competing less on price and more on flexibility, speed of
funding and the relative simplicity of its documentation. CONX
will strive to fund its initial loan advance under a loan to an
approved client within two weeks of CONX's receipt of required
information with respect to the client, and to fund future
advances generally by the next business day after CONX's receipt
of required documentation.
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<PAGE>
Loan Products and Originations. Future loans will be
categorized based on the type of collateral securing the loan.
Revolving loans will be primarily secured by accounts receivable
and secondarily by inventory. Term loans secured by real
property, equipment or other fixed assets may also be offered.
CONX also may periodically enter into participations with other
commercial finance companies. CONX anticipates making loans that
typically will have maturities of two to five years, providing
borrowers with greater flexibility to manage their borrowing
needs. These loans will have an automatic renewal for a one year
period at the end of such contract term unless terminated by
either party (usually requiring 60 days written notice prior to
the end of such term). Equipment loans are term loans typically
with three to five-year amortization periods, but are due and
payable upon termination of the master loan and security
agreement. Accounts receivable loans would be revolving lines of
credit that are collateralized principally by accounts
receivable. Each borrower's customers normally remit their
accounts receivable payments directly to CONX, usually on a
daily basis. CONX deposits the payments daily and applies the
funds to the borrowers' loan balances. CONX typically will lend
up to 80% of the principal balance of accounts receivable that
meet CONX's eligibility requirements. CONX's internal auditors
will conduct quarterly tests of the collateral and financial
condition of each borrower. Inventory loans would be revolving
lines of credit collateralized by eligible inventory that is
restricted to raw materials and finished goods. Inventory loans
will generally be made in conjunction with accounts receivable
loans to qualifying borrowers. Borrowers will be required to
provide CONX with monthly inventory designations that are
supported by a physical listing or a copy of a perpetual
computer listing. These reports would then be compared to the
borrower's financial statements for accuracy, and advances under
the loan proceeds made as a percentage of the eligible inventory
value. Inventory loans will primarily be structured as revolving
lines of credit, but under certain circumstances may be
structured to incorporate monthly amortization. Participation
loans could consist of term loans or revolving lines of credit
in which CONX and other lenders (banks or other asset-based
lenders) jointly lend to borrowers when the loan amount exceeds
the lending limits of an individual lender.
Underwriting. Before a loan or credit line proposal letter
would be issued and a line of credit established, CONX policy
requires a review of the prospective client, its principals,
business and customer base, including a review of financial
statements and other financial records, legal documentation,
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<PAGE>
samples of invoices and related documentation, operational
matters, accounts receivable and payable. In addition, CONX
will confirm certain matters with respect to the prospective
client's business and the collectibility of the client's
commercial receivables and other potential collateral by
conducting public record searches for liens, conducting credit
reviews of the prospective client and its principals, contacting
major customers and suppliers to identify potential problems,
and conducting an on-site audit of the prospective client's
invoice, bookkeeping and collection procedures to verify that
they are properly conducted and operationally compatible with
CONX's operations.
After the preliminary review and due diligence, CONX will
require the prospective borrower to provide a deposit for fees
and orders appraisals if lending against inventory, equipment or
real estate and will schedule an audit. CONX's internal auditing
staff will initially conduct an audit generally consisting of a
due diligence review of the prospective borrower's accounting
and financial records, including a statistical review of
accounts receivable and charge-off history. CONX internal
auditors would then submit their audit reports and work papers
to a to be formed credit committee for review prior to the
extension of credit. In making a decision to approve a credit
line, the credit committee will establish credit limits under
the revolving credit line and analyze the prospective client's
customer base to assure compliance with CONX's policies
generally limiting CONX's overall exposure to account debtors,
especially with respect to privately held or non-investment
grade borrowers. When deemed necessary for credit approval, CONX
may obtain guarantees or other types of security from a client
or its affiliates and may also obtain subordination and
intercreditor agreements from the borrower's other lenders.
Although CONX's anticipated underwriting guidelines will specify
a review of the factors described above, CONX does not
anticipate applying a rigid scoring system to prospective
borrowers. Decisions to enter into a relationship with a
prospective client will be made on a case-by-case basis. CONX's
underwriting guidelines and policies shall provide that, prior
to each loan funding, the account executive assigned to the
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<PAGE>
borrower (i) obtain the original or a copy of the invoice to be
sent to the borrower and the purchase order (if one is required
by CONX) related to such invoice, (ii) confirm the validity and
accuracy of a representative sampling of invoices and (iii) mail
a letter, on the borrower's letterhead, to the new borrower's
customer which introduces CONX and requests that payment be made
directly to CONX. At this time, the Company has not established
limitations on the amount of loans or financing to be provided
to any single or affiliated group of borrowers.
Until such time as the Company identifies the new sectors
in which it intends to expand its activities, it is not
possible to accurately quantify the industry specific risks
associtaed with leasing or lending to those customers. As more
fully discussed in this Registration Statement, the broad risk
associated with leasing activities in general include lessee
default, the cost and the problems associated with locating
and retaking possession of tractors and semi-trailers which
are highly mobile following a default, the risk that the
realized value of the equipment following its sale at the end
of the lease term or upon recovery after a default is less
than projected in under the leasing arrangement (which results
in a loss to the Company on dispositon) and other factors
that are specific to the industry which could affect the
financial performance and position of the Company's customers.
In the trucking industry, these include driver turn-over, costs
of recruiting and paying drivers, increased fuel and regulatory
costs and excess capacity in the form of unfilled and idle
tractors and semi-trailers.
<PAGE>
Credit Monitoring and Controls. An assigned CONX account
executive will monitor each borrower's credit, collateral and
advances. All account executives will be required to meet with
each of their assigned borrowers at least quarterly to monitor
the borrower's business, physically inspect the borrower's
facilities and equipment, and discuss any potential problems the
borrower may be experiencing. CONX will monitor borrowers'
accounts receivable using three forms. The first form is an
accounts receivable aging analysis report prepared monthly by
the loan processor and reviewed by the account executive, and
which includes, among other things, details pertaining to
account concentrations and aging trends. The second is an
accounts receivable activity summary to be prepared weekly by
the loan processor and reviewed by the account executive,
summarizing borrowings, repayments and pledged collateral. The
third is a daily report prepared by the borrower and reviewed by
the account executive to determine credit availability for a
particular day. In addition to the foregoing monitoring
procedures, interim audits of all borrowers may be scheduled as
deemed appropriate. Also, each account will be reviewed on its
anniversary date and revolving lines are to be reviewed and
reconciled on a monthly basis. Where liquidation would be
required for repayment of an outstanding loan, CONX intends to
effect a consensual possession of the subject collateral
property and joint collection of accounts receivable. In certain
instances, court action may be required to ensure collection of
receivables and possession of pledged assets.
Marketing. CONX anticipates that it will obtain business
through referrals from banks, venture capitalists, accounting
firms, management consultants, other borrowers, other finance
companies and independent brokers. In the future, CONX will hire
marketing personnel to call on referral sources to identify and
receive introductions to potential clients and to identify
potential clients from database searches. CONX anticipates that
it will compensate such marketing personnel with what it
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<PAGE>
believes are competitive base salaries and commissions based on
funded transactions in order to motivate and reward the creation
of new business and the renewal of existing business. Such
commissions can be a significant portion of the total
compensation paid to CONX's marketing personnel. CONX's
marketing personnel will have no credit decision authority. The
Company believes that one of CONX's marketing strengths will be
its rapid response time and high level of service.
Financing
The Company is anticipated to have an ongoing need to
finance its leasing and lending activities, which is expected to
increase as the volume of loan and lease originations
increases. The Company's primary operating cash requirements
will include the funding of (i) loans and leases retained by
the Company, (ii) other loans and leases pending their sale;
(iii) fees and expenses incurred in connection with future
securitization programs, (iv) collateralization or reserve
account requirements in connection with future loans pooled and
sold, (v) federal and state income tax payments, and (vi)
ongoing administrative and other operating expenses. The Company
currently funds these cash requirements primarily by vendor
financing from commercial entities and financial institutions,
and anticipates that it will rely on securitizations, whole
loan and lease sales, and borrowings as its cash requirements
increase.
Commercial Loans, Repurchase and Warehouse Facilities. The
Company is dependent upon its ability to access commercial
loans, repurchase facilities and warehouse lines of credit in
order to fund new originations and purchases. Historically,
affiliates of the Company have had various commercial loans,
warehouse lines and reverse repurchase facilities available to
finance truck equipment acquisitions.
To date, the Company has financed the entire purchase
prices of trucks and trailers through 48-month commercial loans
made by Navistar Financial Corporation at interest rates ranging
from 6.5% to 8.43% per annum, by Banc One Leasing Corporation at
interest rates of 6.5% per annum, by GE Capital Corporation at
interest rates of 8.26%, and by Fleet Capital Leasing at
interest rates of 7.83%. Each of those commercial loans has
been guaranteed by Continental Express SD, Inc., the borrower
which is the Company's affiliate.
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The Company, in the future, may enter into warehouse lines
of credit with Navistar Financial Corporation or other similarly
situated commercial finance institutions. Such warehouse lines
of credit are expected to provide additional financing for the
Company's continued growth in loan and lease originations. The
Company also intends to negotiate with a major financial
institution to provide additional financing for the Company's
continued growth in loan and lease originations.
Securitizations of Assets. As a fundamental part of its
business and financing strategy, the Company intends to sell
substantially all of its loans and leases through
securitization, except for loans held for investment. The
Company believes that securitizations provide it with greater
operating leverage and a reduced cost of funds. In a
securitization, the Company sells loans or leases that it has
originated or purchased to a trust or special purpose entity for
a cash purchase price and an interest in the loans or leases
securitized. The cash price is raised through an offering of
pass-through certificates by a trust or special purpose entity.
Following the securitization, the purchasers of the pass-through
certificates receive the principal collected and the investor
pass-through interest rate (the yield rate at which the
certificates are sold) on the principal balance of the loans or
leases, while the Company receives the balance of the cash flows
generated by the securitized assets in the form of principal and
interest on any subordinate bonds or residual interests
retained. These cash flows represent the excess cash flow
collected after credit losses on loans or leases sold over the
sum of the pass-through interest rate plus a normal servicing
fee, a trustee fee and, where applicable, an insurance fee
related to such loans or leases over the life of the loans or
leases.
Whole Loan and Lease Sales. Depending on market conditions,
the Company also intends to execute whole loan and lease sales
in which the Company disposes of its entire economic interest in
the loans and leases on a non-recourse basis (excluding
servicing rights) for cash. Whole loan and lease sale
gains/losses will be recognized at the time of sale and there
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<PAGE>
are generally no residuals. The Company seeks to maximize its
premium on whole loan sale revenues by closely monitoring
institutional purchasers' requirements and focusing on
originating or purchasing the types of loans and leases that
meet those requirements and for which institutional purchasers
tend to pay higher premiums. Whole loan and lease sales are made
on a non-recourse basis pursuant to a purchase agreement
containing customary representations and warranties by the
Company regarding the underwriting criteria applied by the
Company and the origination process. The Company, therefore, may
be required to repurchase or substitute loans in the event of a
breach of its representations and warranties. In addition, the
Company may commit to repurchase or substitute a loan if a
payment default occurs within the first month following the date
the loan is funded, unless other arrangements are made between
the Company and the purchaser. The Company may be required
either to repurchase or to replace loans or leases which do not
conform to the representations and warranties made by the
Company in the pooling and servicing agreements entered into
when the loans and leases are pooled and sold through
securitizations.
Loan and Lease Servicing and Credit Quality
The Company's Servicing Department is responsible for loan
and lease accounting, compliance monitoring and, as necessary,
collections. The Company's servicing operations are located in
Little Rock, Arkansas.
The loan and lease servicing function includes monthly
invoicing, payment collections, computing investor payments and
processing investor remittances. The primary method for borrower
payments is through automatic clearing house direct debiting.
In the future, compliance monitoring procedures will
include a semi-annual review of each borrower's compliance with
stated covenants, including fixed charge coverage ratios. In the
event a borrower fails to comply with such covenants, the
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<PAGE>
borrower will be placed on a "Credit Watch List." Loans and
lease on the Credit Watch List will be subject to increased
scrutiny and monitoring by the Company. If a payment has not
been received by the due date, the loan or lease is considered
in default, and the Company will aggressively pursue collection
procedures, including collection calls and onsite visits.
During the first month of a delinquency lasting 10 days or
more, the Company will contact the borrower to determine the
reason for the default and the likelihood and timing of any
payment. The Company will perform a credit investigation and
obtain updated financial statements from the borrower and
current Dun & Bradstreet and personal credit reports. The
borrower's bank and major trade creditors typically will be
contacted to provide first-hand verification of the financial
status of the borrower. The Company also may retain counsel in
the state in which the borrower is located, if it is determined
that the borrower or a related entity is in bankruptcy or there
is a reason to believe voluntary or involuntary bankruptcy will
be declared.
Within 15 to 45 days of the delinquency, an officer of the
Company will meet in person with the delinquent borrower, the
nature of the borrower's financial difficulty will be re-
examined and the likelihood of repayment will be re-evaluated.
The Company will physically inspect the borrower's business
unit, and industry consultants or other borrowers may be
contacted to evaluate the delinquent business unit.
After 60 days of delinquency, the loan or lease likely will
be accelerated, and the borrower sent a written notice demanding
payment of the full amount due in respect of the loan or lease.
The borrower may also be reminded that any other loans that the
borrower may have from other sources are likely to be in
default. If it appears unlikely that the borrower will cure the
default, the Company may decide to negotiate with the borrower
to induce the borrower to offer the business unit for sale to
other borrowers. In this manner the loans and leases could be
assumed.
Interest Rate Risk Management
The Company's profits depend, in part, on the difference,
or "spread" between the effective rate of interest received by
the Company on leases or loans it originates or purchases
and the interest rates payable by the Company under its
financing facilities or for securities issued in its
securitizations. The spread can be adversely affected because of
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<PAGE>
interest rate increases during the period from the date the
loans are originated or purchased until the closing of the sale
or securitization of such loans.
The Company may in the future be required by its lenders
to hedge all of its fixed-rate principal loan balance.
If that is required, the Company's hedging strategy likely
will include selling U.S. Treasury futures in such amounts
and maturities as to effectively hedge the interest rate
volatility of its portfolio.
In addition, the Company from time to time may use various
other hedging strategies to provide a level of protection
against interest rate risks on its fixed-rate loans. These
strategies may include forward sales of loans or loan-backed
securities, interest rate caps and floors, and buying and
selling of futures and options on futures. The Company's
management determines the nature and quantity of hedging
transactions based on various factors, including market
conditions and the expected volume of loan originations and
purchases. While the Company believes that its hedging
strategies will be cost-effective and provide some protection
against interest rate risks, no hedging strategy can completely
protect the Company from such risks. Further, the Company does
not believe that hedging against interest rate risks associated
with adjustable-rate loans likely will be cost-effective, and
accordingly, likely will not utilize the hedging strategies
described above with respect to its adjustable-rate loans.
Competition
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 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.
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<PAGE>
The Company believes that its industry expertise in the
trucking industry, 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. The Company also believes that such
experience will be beneficial in expanding into other areas of
equipment lease and financing transactions.
Regulation
Lending Laws. Certain aspects of the Company's businesses
are subject to regulation and supervision at both the federal
and state level. Regulated matters include loan origination,
credit activities, maximum interest rates and finance and other
charges, disclosure to customers, the collection, foreclosure,
repossession and claims handling procedures to be utilized by
the Company, multiple qualification and licensing requirements
for doing business in various jurisdictions and other trade
practices.
Future Laws. The laws, rules and regulations applicable to
the Company are subject to modifications and change. There can
be no assurance that rules and regulations, or other such laws,
rules or regulations will not be adopted in the future which
could make compliance more difficult or expensive, restrict the
Company's ability to originate or sell loans, the amount of
interest and other charges earned on loans originated or sold by
the Company, or otherwise adversely affect the business or
prospects of the Company.
Employees
At December 31, 1999 the Company had no employees.
Accordingly, the Company is not subject to any collective
bargaining agreement. 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 its controlling
stockholder. The Company reimburses the leasing company the
allocable cost of the salary and benefits of the personnel
providing services on behalf of the Company, plus a amount that
reflects a reasonable overhead allocation and profit margin (not
to exceed 10%). These personnel also provide services under
similar arrangement with other affiliates of the Company's
controlling shareholder, including Harvey, Incorporated.
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<PAGE>
ITEM 2. FINANCIAL INFORMATION
The following table sets forth selected financial data and
other operating information of the Company for the fiscal years
ending December 31, 1998 and 1999 derived from the financial
statements and notes thereto included elsewhere herein audited
by Baird, Kurtz & Dobson, as set forth in the audit report also
included elsewhere herein. The following data should be read in
conjunction with Management s Discussion and Analysis of
Financial Condition and Results of Operations and the financial
statements of the Company and the notes thereto included
elsewhere in this Registration Statement.
Statements of Income Data:
12/31/98 12/31/99 Nine Months
-------- ------- Ended 9/30/00
-------------
(unaudited)
Lease Income $635,550 $2,894,050 $3,173,687
Operating expenses
Depreciation 408,196 1,662,136 1,901,512
Management Fees 60,000 45,000
Professional Fees 36,788 7,894 29,421
Rent 6,000 4,500
Directors' Fees 15,000 20,000 15,000
Taxes and Licenses 4,385 10,375
Interest expense 161,727 539,815 544,828
Other 102 1,387 1,654
--- ----- -----
621,813 2,301,617 2,552,270
------- --------- ---------
Income from operations 13,737 592,433 621,417
------ ------- -------
Other Income
(expenses)
Interest income 2,830 5,710
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Income before income
taxes 13,737 595,263 627,127
Provision for income
taxes 5,220 229,645 240,126
----- ------- -------
Net income $8,517 $365,618 $387,001
====== ======== ========
Balance Sheet Data:
12/31/98 12/31/99 9/30/00
(unaudited)
Working capital . . . . $ 41,915 $ 205,006 397,552
Total assets . . . . . 4,687,816 8,201,753 11,260,520
Total liabiliites . . . 4,609,299 7,775,618 10,417,387
Stockholders' equity . 78,517 426,135 813,136
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis below should be read in
conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Registration Statement. 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.
First Nine Months Ended September 30, 2000
Lease income was $3,173,787 for the first six months ended
September 30, 2000. As of September 30, 2000, the Company had 173
tractors and 142 semi-trailers leased to its customers. Operating
expenses (consisting primarily of interest and depreciation) for
the first nine months ended September 30, 2000 were $2,552,270,
and operating expenses as a percentage of lease income was 80.32%.
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Income from operations for the first nine months ended September
30, 2000 was $621,417. Other income for the first nine months
ended September 30, 2000 was $5,7103. Income before income taxes
for the first nine months ended September 30, 2000 was $627,127,
with provision for income taxes of $240,126, resulting in net
income for the first nine months ended September 30, 2000 of
$387,001.
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 balance of the year 2000
and 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.
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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 also has 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. 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. See
Interest Rate Risk Management above.
ITEM 3. PROPERTIES
The Company's executive and administrative offices are
located at 502 North Division Street, Carson, City, Nevada, and
1406 Cantrell Road, Little Rock, Arkansas, and consist of an
29
<PAGE>
aggregate of approximately 3,500 square feet. The lease on the
premises located in Carson City expires in 2000 and the current
annual rent is $1,200. No expense was incurred or recorded in
1999. The lease on the premises in Little Rock expires in 2000
and the current annual rent is $6,000. Both leases have been
extended for a two year terms on the same terms and conditions
through December 31, 2002.
The Company also anticipates that it will rent space for
other offices. It is anticipated that each of these facilities
will aggregate approximately 3,000 square feet, and that the terms
of these leases will vary as to duration and rent escalation
provisions tied to either increases in the landlord's operating
expenses or fluctuations in the consumer price index in the
relevant geographical area. During the next twelve months, the
Company anticipates opening one such office, likely in Dallas,
Texas. Such opening is likely to occur in the third or fourth
quarter of 2001, depending on the Company's then current
operations.
ITEM 4. 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 listed in Item
5 of this Form 10; 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.
30
<PAGE>
Amount and
Nature of
Name and Address of Beneficial Percentage of
Beneficial Owner Ownership Outstanding Shares
---------------- --------- ------------------
Edward M. Harvey(1)(2) 4,505,200 67.75%
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%
350,000
Mark Guffin(1)(8) 350,000 5.26%
Diane Miller(1)(9) 44,800 *
All executive officers 4,505,200 68.78%
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) Edward M. Harvey is the spouse of Bonnie P. Harvey and the
father of Charles Harvey, Deborah Harvey and 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) 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.
31
<PAGE>
(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 5. DIRECTORS AND EXECUTIVE OFFICERS
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 68 President and Chairman of
the Board of Directors
Todd W. Tiefel 33 Secretary, Treasurer and
Director
John P. Flahavin 63 Director
Theodore C. Skokos 52 Director
Michael Kelly Wooldridge 41 Director
---------
Edward M. Harvey has been the President and the Chairman
of the Company's Board of Directors since its inception. Prior
32
<PAGE>
to founding the Company, Mr. Harvey founded and continues to
own and serve as the Chairman of the Board of Harvey
Incorporated and 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 since its inception, and has been the Chief
Financial Officer of Harvey Incorporated since 1995. Prior
thereto and since before 1993, 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 1993, 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.
Directors of the Company are elected annually by the
stockholders of the Company to serve for a term of one year or
until their successors are duly elected and qualified.
Officers serve at the pleasure of the Board of Directors
subject to any rights under employment agreements. Each
director is paid cash compensation of $1,000 per quarter and
receives reimbursement of reasonable out-of-pocket expenses
incurred in connection with meetings of the Board. No other
compensation is, or will be, paid to directors
33
<PAGE>
for services rendered as directors. From the Company's
inception to the date of this filing actions of the Company's
Board of Directors have been taken pursuant to unanimous
written consents in lieu of any regular or specially called
meetings. There are no family relationships between any
directors or officers of the Company.
ITEM 6. EXECUTIVE COMPENSATION
The Company's executive officers are presently not
compensated for their services in such capacities.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The officers and directors are required to devote only so
much of their time to the Company's affairs as is necessary for
the effective conduct of the Company's business. Each of the
directors and officers has, 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 and in which any
director, officer or five percent (5%) shareholder is involved
since the Company's inception.
ITEM 8. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the
Company is a party or to which any of the Company's assets or
properties are subject.
34
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is not presently traded on an
established public trading market. Following the filing on this
Form 10, the Company anticipates that it will submit its Common
Stock for listing on the OTC Electronic Bulletin Board. As of
September 30, 2000, there are no outstanding options or
warrants to purchase, or securities convertible into, common
stock of the Company. As of September 30, 2000, there are no
shares of the Company's common stock or other equity of the
Company that is being, or has been publicly proposed to be,
publicly offered by the Company. Subject to compliance with
the provisions of Rule 144 of the Securities Act of 1933,
as amended, and specifically the requirements of Rule 144(c),
all of the issued and outstanding shares of the Company's
common stock would be eligible for sale pursuant to Rule 144,
and further subject to the restrictions on sales by affiliates
of the issuer and those that could be deemed underwriters. With
the exception of 44,800 shares of commons stock, all of the
remaining issued and outstanding common stock of the Company
would be deemed held by affiliates for purposes of Rule 144.
The following table sets forth the names of the holders of
the Company's common stock as of September 30, 2000:
Number of Shares of
Name of Stockholder Common Stock
------------------- -------------------
Edward M. Harvey 4,505,200
Bonnie P. Harvey 350,000
Charles Harvey 350,000
Deborah Harvey 350,000
Jill Pryor 350,000
Darby Boyd 350,000
Mark Guffin 350,000
Diane Miller 44,800
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. The payment of dividends, if any, is
within the discretion of the Board of Directors and will depend
on the Company's earnings, if any, its capital requirements and
financial condition, and such other factors as the Board of
Directors may consider. In addition, if the Company is able to
negotiate new credit facilities, such facilities may include
restrictions on the Company's ability to pay dividends.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In April 1998, the Company issued unregistered securities
to the initial shareholders of the Company resulting in the
issuance and delivery of 7,000,000 shares of the Company's
Common Stock. Such securities were issued at $.01 par value
pursuant to the exemptions from registration provided under the
35
<PAGE>
Delaware General Corporation Law and the exemption provided by
Section 4(2) of the Securities Act of 1933, as amended, for
issuances of securities not involving any public offering. The
following table sets forth the names of the recipients and
amounts received in connection with said transaction:
Number of Shares of Amount
Name of Stockholder Common Stock Acquired Received
----------------- ------------------- ------
Edward M. Harvey 4,505,200 $ 45,052
Bonnie P. Harvey 350,000 3,500
Charles Harvey 350,000 3,500
Deborah Harvey 350,000 3,500
Jill Pryor 350,000 3,500
Darby Boyd 350,000 3,500
Mark Guffin 350,000 3,500
Ralph Bradbury 350,000 3,500
Diane Miller 44,800 448
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital stock of the Company consists of
25,000,000 shares of Common Stock, $.01 par value (the "Common
Stock"), and 5,000,000 shares of Preferred Stock, $.01 par
value (the "Preferred Stock"). At December 31, 1999, the
Company had 6,650,000 shares of Common Stock outstanding and
held of record by nine (9) persons. At such date, there were
no shares of Preferred Stock issued and outstanding.
Common Stock
Each share of Common Stock entitles the holder thereof to
one vote for each share on all matters submitted to the
stockholders. The Common Stock is not subject to redemption or
to liability for further calls. Holders of Common Stock will
be entitled to receive such dividends as may be declared by the
Board of Directors of the Company out of funds legally
available therefor and to share pro rata in any distribution to
stockholders. The stockholders have no conversion, preemptive
or other subscription rights. Shares of authorized and
unissued Common Stock are issuable by the Board of Directors
without any further stockholder approval.
36
<PAGE>
Preferred Stock
The Board of Directors is authorized, without further
action by the stockholders, to issue from time to time shares
of Preferred Stock in one or more classes or series and to fix
the designations, voting rights, liquidation preferences,
dividend rights, conversion rights, rights and terms of
redemption (including sinking fund provisions) and certain
other rights and preferences of the Preferred Stock. The
issuance of shares of Preferred Stock under certain
circumstances could adversely affect the voting power of the
holders of Common Stock and may have the effect of delaying,
deferring or preventing a change in control of the Company. As
of the date of this Prospectus, the Company has no plan or
arrangement for the issuance of any shares of Preferred Stock.
1998 Stock Compensation Plan
In April 1998, the Company instituted its 1998 Stock
Compensation Plan (the "Stock Compensation Plan") for the
purpose of compensating eligible non-employee directors by
granting them shares of the Company's Common Stock in lieu of
annual director's fees. A total of 100,000 shares are reserved
for issuance pursuant to the Stock Compensation Plan. The
Stock Compensation Plan is administered by the Board of
Directors and provides that members of the Board of Directors
who are neither officers nor employees of the Company or of any
subsidiary shall receive, on November 15 of each year, 1,000
shares of Common Stock. The Common Stock will be granted only
to directors who are not full-time employees as of the grant
date. The Stock Compensation Plan may be terminated or amended
either by the Board of Directors or by the Board of Directors
and the stockholders, but not more often than once every six
months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or
the rules thereunder. Unless the Stock Compensation Plan is
amended, neither the number nor type of securities to be
granted to directors pursuant to the Stock Compensation Plan
may be changed. No shares of the Company's Common Stock have
been issued under the Stock Compensation Plan to date.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that,
except to the extent prohibited by the Delaware General
Corporation Law (the "DGCL"), its directors shall not be
personally liable to the Company or its stockholders for
37
<PAGE>
monetary damages for any breach of fiduciary duty as directors
of the Company. Under Delaware law, the directors have
fiduciary duties to the Company that are not eliminated by this
provision of the Certificate of Incorporation and, in
appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain
available. In addition, each director will continue to be
subject to liability under Delaware law for breach of the
director's duty of loyalty to the Company for acts or omissions
that are found by a court of competent jurisdiction to be not
in good faith or involving intentional misconduct, for knowing
violations of law, for action leading to improper personal
benefit to the director and for payment of dividends or
approval of stock repurchases or redemptions that are
prohibited by Delaware law. This provision also does not affect
the director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental
laws. In addition, the Company intends to maintain liability
insurance for its officers and directors.
Section 145 of the DGCL permits the Company to, and the
Certificate of Incorporation provides that the Company may,
indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was,
or has agreed to become, a director or officer of the Company,
or is or was serving, or has agreed to serve, at the request of
the Company, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint
venture, trust or other enterprise s(including any employee
benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses
(including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and
any appeal therefrom. Such right of indemnification shall inure
to such individuals whether or not the claim asserted is based
on matters that antedate the adoption of the Certification of
Incorporation. Such right of indemnification shall continue as
to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs and personal
representatives of such a person. The indemnification provided
by the Certificate of Incorporation shall not be deemed
exclusive of any other rights that may be provided now or in
38
<PAGE>
the future under any provision currently in effect or hereafter
adopted by the Certificate of Incorporation, by any agreement,
by vote of stockholders, by resolution of directors, by
provision of law or otherwise. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted
to directors of the Company pursuant to the foregoing
provision, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Section 102(b)(7) of the DGCL permits a corporation to
eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL
relating to unlawful dividends, stock purchases or redemptions
or (iv) for any transaction from which the director derived an
improper personal benefit. Section 102(b)(7) of the DGCL is
designed, among other things, to encourage qualified
individuals to serve as directors of Delaware corporations. The
Company believes this provision will assist it in securing the
services of qualified directors who are not employees of the
Company. This provision has no effect on the availability of
equitable remedies, such as injunction or rescission. If
equitable remedies are found not to be available to
stockholders in any particular case, stockholders may not have
any effective remedy against actions taken by directors that
constitute negligence or gross negligence.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and Schedules required to be
filed hereunder are enclosed on Pages F-1 through F-22. Also
included is the additional required interim data.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Baird, Kurtz & Dobson, Certified Public Accountants, have
served as the Company's principal accountant since the
Company's formation. There were no accounting or auditing
disagreements between the Company and Baird, Kurtz & Dobson.
39
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements - See Index to Financial
Statements on Page F-1 and F-12 of this Information Sheet.
(b) Exhibits -
3.1 Certification of Incorporation
3.2 Bylaws
10.1 Registrant's 1998 Stock Compensation Plan
23.1 Consent of Baird, Kurtz & Dobson, Certified
Public Accountants
SIGNATURES
Pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, the Company has duly caused
this Amendment to Number 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized.
CONX CAPITAL CORPORATION,
Dated January 8, 2001
By: /s/ Edward M. Harvey, President
Edward M. Harvey, President
40
<PAGE>
CONX CAPITAL CORPORATION
FORM 10
INDEX TO EXHIBITS
Exhibits Page
----
3.1 Certificate of Incorporation of the Registrant . . . *
3.2 Bylaws of the Registrant . . . . . . . . . . . . . . *
10.1 Registrant's 1998 Stock Compensation Plan . . . . . *
23.1 Consent of Baird, Kurtz & Dobson, Certified Public
Accountants . . . . . . . . . . . . . . . . . . . . 42
23.2 Accountants, Acknowledgement . . . . . . . . . . . 43
* Previously included as an Exhibit to Form 10 filed
August 3, 2000, File Number 0-31235.
-----------------
41
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the Form 10 of our report
dated January 11, 2000, with respect to the financial
statements of CONX Capital Corporation as of December 31,
1999 and 1998, and for the year ended December 31, 1999
and the period April 21, 1998 through December 31, 1998.
/s/ Baird, Kurtz & Dobson
BAIRD, KURTZ & DOBSON
Little Rock, Arkansas
November 13, 2000
42
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' ACKNOWLEDGEMENT
We acknowledge the incorporation by reference in the November 17,
2000 Registration Statement of Form 10 (Amendment No. 1) of our
report dated October 30, 2000 included with the Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000. Pursuant
to Rule 436(c) under the Securities Act of 1933, this report
should not be considered part of the registration statement
prepared or certified by us within the meaning of Section 7 and
11 of the Act.
/s/ Baird, Kurtz & Dobson
BAIRD, KURTZ AND DOBSON
Little Rock, Arkansas
November 17, 2000
43
<PAGE>
CONX CAPITAL CORPORATION
DECEMBER 31, 1999
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
<PAGE>
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, 1999 and 1998, and the related
statements of income, changes in stockholders equity and cash flows
for the year ended December 31, 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, 1999 and 1998, and the results
of its operations and its cash flows for the year ended December 31,
1999 and the period April 21, 1998 through December 31, 1998, in
conformity with generally accepted accounting principles.
BAIRD, KURTZ & DOBSON
Little Rock, Arkansas
January 11, 2000
F-1
<PAGE>
CONX CAPITAL CORPORATION
BALANCE SHEETS
DECEMBER 31, 1999 and 1998
ASSETS
------
1999 1998
---- ----
Cash $ 97,203 $ 85,009
Accounts receivable - affiliated company 37,006
Note receivable - affiliated company 175,565
Equipment, at cost, net of accumulated
depreciation 7,891,979 4,602,807
--------- ---------
$8,201,753 $4,687,816
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Accounts payable - affiliated company $ 18,000 $ 26,610
Accrued expenses 86,768 16,484
Long-term debt 7,435,98 4,560,985
Deferred income taxes 234,865 5,220
--------- ---------
TOTAL LIABILITIES 7,775,618 4,609,299
--------- ---------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
authorized and 70,000 70,000
issued 7,000,000 shares
Retained earnings 374,135 8,517
------- -------
444,135 78,517
Treasury stock, at cost, 350,000 shares (18,000)
------- -------
426,135 78,517
------- -------
$8,201,753 $4,687,816
========= =========
See Notes to Financial Statements
F-2
<PAGE>
CONX CAPITAL CORPORATION
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD
APRIL 21, 1998 THROUGH DECEMBER 31, 1998
1999 1998
---- ----
LEASE INCOME $2,894,050 $ 635,550
--------- --------
OPERATING EXPENSES
Management fees 60,000
Depreciation 1,662,136 408,196
Professional fees 7,894 36,788
Directors fees 20,000 15,000
Rent 6,000
Taxes and licenses 4,385
Other 1,387 102
Interest expense 539,815 161,727
--------- ---------
2,301,617 621,813
--------- ---------
INCOME FROM OPERATIONS 592,433 13,737
--------- ---------
OTHER INCOME (EXPENSES)
Interest income 2,830
---------
INCOME BEFORE INCOME TAXES 595,263 13,737
<PAGE>
PROVISION FOR INCOME TAXES 229,645 5,220
--------- ---------
NET INCOME $ 365,618 $ 8,517
--------- ---------
EARNINGS PER SHARE
Net income $ 365,618 $ 8,517
========= =========
Weighted average shares of
common stock 6,825,000 7,000,000
--------- ---------
Basic earnings per share $ 0.0536 $ 0.0012
--------- ---------
See Notes to Financial Statements
F-3
<PAGE>
CONX CAPITAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 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
======= ======= ========= =======
See Notes to Financial Statements
F-4
<PAGE>
CONX CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD
APRIL 21, 1998 THROUGH DECEMBER 31, 1998
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 365,618 $ 8,517
Items not requiring cash:
Depreciation 1,662,136 408,196
Deferred income taxes 229,645 5,220
Changes in:
Accounts receivable (37,006)
Accounts payable and accrued expenses 61,674 43,094
--------- --------
Net cash provided by operating
activities 2,282,067 465,027
========= ========
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,951,308) (5,011,033)
Issuance of note receivable (175,565)
--------- ---------
Net cash used in investing
activities (5,126,873) (5,011,033)
CASH FLOWS FROM FINANCING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (18,000)
Issuance of common stock 70,000
Proceeds from issuance of long-term
debt 4,951,308 5,011,033
Payments on long-term debt (2,076,308) (450,018)
Net cash provided by financing --------- ---------
activities 2,857,000 4,631,015
<PAGE>
NET INCREASE IN CASH 12,194 85,009
CASH, BEGINNING OF PERIOD 85,009
--------- ---------
CASH, END OF PERIOD $ 97,203 $ 85,009
========= =========
See Notes to Financial Statements
F-5
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 1999 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 periods
ended December 31, 1999 and 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, 1999, the approximate future minimum lease
incomes under these operating leases are as follows:
2000 $ 2,394,175
2001 145,350
----------
<PAGE>
$ 2,539,525
----------
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 $2,894,050 and
$635,550 for the years ended December 31, 1999 and 1998,
respectively.
F-6
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Equipment under operating leases consists of the following at
December 31, 1999 and 1998:
1999 1998
---- ----
Tractor $ 7,496,417 $ 3,960,053
Trailers 2,465,894 1,050,950
--------- ----------
9,962,311 5,011,003
Less accumulated depreciation 2,070,332 408,196
--------- ---------
$ 7,891,979 $ 4,602,807
========== ==========
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.
<PAGE>
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
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2: LONG-TERM DEBT
Note payable - Navistar Financial Corp. (A) $ 5,328,485
Note payable Banc One Leasing Corp. (B) 1,517,368
Note payable Fleet Capital Leasing (C) 590,132
---------
$ 7,435,985
---------
Aggregate annual maturities of long-term debt at
December 31, 1999
2000 $ 2,418,351
2001 2,594,615
2002 2,206,352
2003 216,667
---------
$ 7,435,985
(A) Due in monthly installments through 2003 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)
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
<PAGE>
Company, which is owned by a stockholder. The Company paid
Harvey, Inc. $60,000 during 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, 1999, the approximate future minimum lease
income under these operating leases are as follows:
2000 $ 2,394,175
2001 145,350
---------
$ 2,539,525
=========
F-8
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4: INCOME TAXES
The provision for income taxes includes these components:
1999 1998
---- ----
Taxes currently payable $ $
Deferred income taxes 229,645 5,220
-------- -------
$ 229,645 $ 5,220
A reconciliation of income tax expense at the statutory rate
to the Company's actual income tax expense is shown below:
1999 1998
---- ----
Computed at the statutory rate (34%) $ 202,389 $ 4,670
Increase resulting from:
State income taxes - net of federal
tax benefit 27,256 550
------- -----
Actual tax provision $229,645 $ 5,220
======= =======
The tax effects of temporary differences related to deferred
taxes shown on the balance sheets were:
1999 1998
---- ----
Deferred tax assets:
Net operating loss carryforwards
(expiring 2019) $ 276,864 $ 172,937
<PAGE>
Deferred tax liabilities:
Accumulated depreciation (511,729) (178,157)
--------- ---------
Net deferred tax liability $ (234,865) $ (5,220)
========= ========
F-9
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5: EQUIPMENT
Equipment consists of the following at December 31, 1999
and 1998:
1999 1998
---- ----
Tractors $ 7,496,417 $ 3,960,053
Trailers 2,465,894 1,050,950
--------- ---------
9,962,311 5,011,003
Less accumulated depreciation 2,070,332 408,196
$ 7,891,979 $ 4,602,807
NOTE 6: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure
of certain significant estimates and current vulnerabilities due
to certain concentrations. These matters include the following:
Year 2000 Issue
---------------
Like all entities, the Company is exposed to risks associated
with the Year 2000 Issue, which affects computer software and
hardware; transactions with customers, vendors and other
entities; and equipment dependent on microchips. The Company
recognizes that the Year 2000 Issue poses a risk beyond January
1, 2000 as errors may not become evident until after that date.
The Company has performed the remediation steps it believes
necessary to address the Year 2000 Issue.
<PAGE>
It is not possible for any entity to guarantee the results of
its own remediation efforts or to accurately predict the impact
of the Year 2000 Issue on third parties with which it does
business. If remediation efforts of the Company or third parties
with which it does business are not successful, the Year 2000
problem could have negative effects on the Company's financial
condition and results of operation in the near term. The Company
does not believe any significant Year 2000 problems have
occurred.
F-10
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7: ADDITIONAL CASH FLOW INFORMATION
1999 1998
---- ----
Interest paid $ 535,531 $ 145,243
======= =======
F-11
<PAGE>
CONX CAPITAL CORPORATION
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT ACCOUNTANTS' REPORT . . . . . . . . . . . . . . F-13
FINANCIAL STATEMENTS
Balance Sheets . . . . . . . . . . . . . . . . . . . . . F-14
Statements of Income . . . . . . . . . . . . . . . . . . F-15
Statements of Changes in Stockholders Equity . . . . . F-16
Statements of Cash Flows . . . . . . . . . . . . . . . . F-17
Notes to Financial Statements . . . . . . . . . . . . . F-18
F-12
<PAGE>
Independent Accountants' Report
-------------------------------
Board of Directors
CONX Capital Corporation
Little Rock, Arkansas
We have reviewed the condensed balance sheet of CONX CAPITAL
CORPORATION as of September 30, 2000 and the related condensed
statement of income and cash flows for the three month and nine-month
periods ended September 30, 2000 and 1999 and the condensed statements
of changes in stockholders's equity and cash flows for the nine month
periods ended September 30, 2000 and 1999. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet as of December 31, 1999 and the
related statements of income, statements of changes in stockholders
equity, and cash flows for the year then ended and in our report dated
January 11, 2000, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in
the accompanying condensed financial statements as of December 31,
1999 is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
BAIRD, KURTZ & DOBSON
Little Rock, Arkansas
Octiober 30, 2000
F-13
<PAGE>
CONX CAPITAL CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
ASSETS
------
September 30,
2000
(Unaudited) 1999
--------- ----
Cash $ 317,055 $ 97,203
Accounts receivable - affiliated company 101,662 37,006
Prepaid expenses 5,000
Note receivable - affiliated company 175,565
Equipment, at cost, net of accumulated
depreciation 10,836,803 7,891,979
----------- ---------
$ 11,260,520 $ 8,201,753
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Accounts payable - affiliated company $ $ 18,000
Accrued expenses 26,165 86,768
Long-term debt 9,946,228 7,435,985
Deferred income taxes 474,991 234,865
---------- ---------
TOTAL LIABILITIES 10,447,384 7,775,618
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
authorized and issued 7,000,000 shares 70,000 70,000
Retained earnings 761,136 374,135
--------- --------
813,136 444,135
<PAGE>
Treasury stock, at cost, 350,000 shares (18,000) (18,000)
--------- -------
813,136 426,135
--------- -------
$ 11,260,520 $ 8,201,753
========== =========
See Accountants' Review Report and
Notes to Condensed Financial Statements
F-14
<PAGE>
CONX CAPITAL CORPORATION
STATEMENTS OF INCOME
====================
FOR THE THREE MONTHS AND NINE MONTHS
====================================
ENDED SEPTEMBER 30, 2000 AND 1999
=================================
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
LEASE INCOME $ 1,152,600 $ 736,650 $ 3,173,687 $ 2,125,100
--------- ------- --------- ---------
OPERATING EXPENSES
Management fees 15,000 45,000
Depreciation 684,198 404,761 1,901,512 1,211,132
Interest expense 196,721 132,756 544,828 392,794
Professional fees 16,876 29,421 7,894
Directors fees 5,000 5,000 15,000 15,000
Rent 1,500 4,500
Taxes and licenses 1,440 10,375
Other 280 308 1,634 1,213
--------- ------- --------- --------
921,015 542,825 2,552,270 1,632,418
--------- ------- --------- ---------
INCOME FROM OPERATIONS 231,585 193,825 621,417 492,682
OTHER INCOME 2,324 5,710
--------- ------- ------- ---------
INCOME BEFORE INCOME TAXES 233,909 193,825 627,417 492,682
<PAGE>
PROVISION FOR INCOME TAXES 89,563 74,216 240,126 188,648
--------- -------- ------- -------
NET INCOME $ 144,346 $ 119,609 $ 387,001 $ 304,034
========== ========= ========= =========
EARNINGS PER SHARE
Net income $ 144,346 $ 119,609 $ 387,001 $ 304,034
Weighted average shares
of common stock 6,650,000 6,888,518 6,650,000 6,672,826
--------- --------- --------- ---------
Basic earnings per share $ 0.0217 $ 0.0174 $ 0.0582 $ 0.0456
========== ========= ========= =========
See Accountants' Review Report and
Notes to Condensed Financial Statements
F-15
<PAGE>
CONX CAPITAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Common Retained Treasury
Stock Earnings Stock Total
----- -------- ----- -----
BALANCE, DECEMBER 31, 1998 $ 70,000 $ 8,517 $ $ 78,517
Net income 304,034 304,034
------- ------- ------- -------
BALANCE, SEPTEMBER 30, 1999 70,000 312,551 382,551
Net income 61,584 61,584
Purchase of treasury stock (18,000) (18,000)
------- ------- ------- -------
BALANCE, DECEMBER 31, 1999 70,000 374,135 (18,000) 426,135
Net income (unaudited) 387,001 387,001
------- ------- -------- -------
BALANCE, SEPTEMBER 30,
2000 (UNAUDITED) $ 70,000 $ 761,136 $(18,000) $ 813,136
======= ======== ======= ========
See Accountants' Review Report and
Notes to Condensed Financial Statements
F-16
<PAGE>
CONX CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
September 30, September 30,
2000 1999
(Unaudited) (Unaudited)
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 387,001 $ 304,034
Items not requiring cash:
Depreciation 1,901,512 1,211,132
Deferred income taxes 240,126 188,648
Changes in:
Accounts receivable (64,656) (35,775)
Prepaid expenses (5,000)
Accounts payable and accrued expenses (78,603) (25,095)
--------- ---------
Net cash provided by operating
activities 2,380,380 1,642,944
========= =========
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,846,336) (4,339,308)
Collections on note receivable 175,565
--------- ---------
Net cash used in investing
activites (4,670,771) (4,339,308)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (18,000)
Proceeds from issuance of long-term
debt 4,846,336 4,339,308
<PAGE>
Payments on long-term debt (2,336,093) (1,531,449)
--------- ---------
Net cash provided by financing
activities 2,510,243 2,789,859
--------- ---------
INCREASE IN CASH 219,852 93,495
CASH, BEGINNING OF PERIOD 97,203 85,009
-------- --------
CASH, END OF PERIOD $ 317,055 $ 178,504
========== ===========
See Accountants' Review Report and
Notes to Condensed Financial Statements
F-17
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 31, 2000 AND DECEMBER 31, 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 nine months ended September 30, 2000 and
the year December 31, 1999, all lease income was derived
from one affiliated company. The results of operations for
the nine months ended September 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
Accounting Policies
-------------------
All adjustments made to the unaudited financial
statements were of a normal recurring nature. In the
opinion of management, all adjustments necessary for a fair
presentation of the results of interim periods have been
made. The results of operations for the period are not
necessarily indicative of the results to be expected for the
full year.
Certain information and note disclosures normally
included in the Company s annual financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These
consolidated financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto included in the Company s Form 10 filed with
the Securities and Exchange Commission.
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.
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 31, 2000 AND DECEMBER 31, 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
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.
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 September 30, 2000, the approximate future minimum
lease income under these operating leases are as follows:
(Unaudited)
-----------
2000 $ 820,575
2001 1,683,500
2002 350,000
---------
$ 2,854,075
=========
See Accountants' Review Report
F-18
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 31, 2000 AND DECEMBER 31, 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Operating Leases
----------------
The Company leases equipment under noncancellable operating
leases. These leases expire in various years through
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 $3,173,687 and $2,894,050 for the
nine months and year ended September 30, 2000 and December
31, 1999, respectively.
Equipment under operating leases consists of the following
at September 30, 2000 and December 31, 1999:
2000
(Unaudited) 1999
--------- ----
Tractors $ 12,342,754 $ 7,496,417
Trailers 2,465,894 2,465,894
---------- ---------
14,808,648 9,962,311
Less accumulated depreciation 3,971,845 2,070,332
---------- ---------
$ 10,836,803 $ 7,891,979
=========== =========
NOTE 2: LONG-TERM DEBT
(Unaudited)
---------
Note payable - Navistar Financial Corp. (A) $ 7,012,692
Note payable Banc One Leasing Corp. (B) 1,175,698
Note payable Fleet Capital Leasing (C) 488,126
Note payable GE Capital Corp. (D) 1,269,712
---------
$ 9,946,228
=========
See Accountants' Review Report
F-19
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 31, 2000 AND DECEMBER 31, 1999
NOTE 2: LONG-TERM DEBT (Continued)
Aggregate annual maturities of long-term debt at
September 30, 2000:
2000 $ 890,137
2001 3,729,162
2002 3,406,037
2003 1,586,389
2004 334,503
---------
$ 9,946,228
=========
(A)
Due in monthly installments through 2003 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 13, 2004; payable $36,421 monthly, including
interest at 8.26%; secured by trucks. Note is
guaranteed by Continental Express SD, Inc. (see Note 3)
NOTE 3: RELATED PARTY TRANSACTIONS
The Company leases all of its equipment to Continental
<PAGE>
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 the Company s
principal stockholder. The Company paid Harvey, Inc.
$45,000 and $60,000 during the nine months ended September
30, 2000 and the year ended December 31, 1999, respectively,
for management fees.
At December 31, 1999, the Company had a note receivable
from Continental Express SD, Inc. in the amount of $175,565.
This note bears no interest.
See Accountants' Review Report
F-20
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 31, 2000 AND DECEMBER 31, 1999
NOTE 3: RELATED PARTY TRANSACTIONS (Continued)
At September 30, 2000, the approximate future minimum
lease income under these operating leases are as follows:
(Unaudited)
---------
2000 $ 820,575
2001 1,683,500
2002 350,000
---------
$ 2,854,075
=========
NOTE 4: INCOME TAXES
The provision for income taxes includes these components:
2000
(Unaudited) 1999
--------- ----
Taxes currently payable $ $
Deferred income taxes 240,126 229,645
------- -------
$ 240,126 $ 229,645
A reconciliation of income tax expense at the statutory
rate to the Company s actual income tax expense is shown
below:
2000
(Unaudited) 1999
--------- ----
Computed at the statutory rate (34%) $ 213,223 $ 202,389
Increase resulting from:
State income taxes net of federal
tax benefit 26,903 27,256
Actual tax provision $ 240,126 $ 229,645
======= =======
See Accountants' Review Report
F-21
<PAGE>
CONX CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 31, 2000 AND DECEMBER 31, 1999
NOTE 4: INCOME TAXES (Continued)
The tax effects of temporary differences related to
deferred taxes shown on the balance sheets were:
2000
(Unaudited) 1999
--------- ----
Deferred tax assets:
Net operating loss carryforwards
(expiring 2019) $ 395,872 $ 276,864
Deferred tax liabilities:
Accumulated depreciation (870,863) (511,729)
Net deferred tax liability $ (474,991) $ (234,865)
======== ========
NOTE 5: EQUIPMENT
Equipment consists of the following at September 30, 2000
and December 31, 1999:
2000
(Unaudited) 1999
--------- ----
Tractors $ 12,342,754 $ 7,496,417
Trailers 2,465,894 2,465,894
---------- ---------
14,808,648 9,962,311
Less accumulated depreciation 3,971,845 2,070,332
---------- ---------
$ 10,836,803 $ 7,891,979
========== =========
NOTE 6: ADDITIONAL CASH FLOW INFORMATION
2000
(Unaudited) 1999
--------- ----
Interest paid $ 544,828 $ 535,531
========= =========
See Accountants' Review Report
F-22
<PAGE>
