U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File No. 0-31235
CONX CAPITAL CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
NEVADA 62-1736894
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
502 N. DIVISION STREET, CARSON CITY, NV 89703
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(702) 886-0713
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
As of March 31, 2002, the Registrant had 6,650,000 shares of
Common Stock, $.01 par value per share, outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
This quarterly report on Form 10-Q contains forward-looking
statements as defined by the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements should be read in
conjunction with the cautionary statements and other important
factors included in this Form 10-Q as well as in other filings
made by the Company with the Securities and Exchange Commission
("SEC") . These forward-looking statements are subject to a
number of risks and uncertainties, which could cause the
Company's actual results to differ materially from those
anticipated in such statements and include statements concerning
plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which
are other than statements of historical facts. Factors which
could cause such results to differ include the Company's limited
operating history, the Company's dependence on the operations of
an affiliated party, reliance upon third party financing, the
need for additional financing and other factors discussed in the
Company's filings with the SEC, including the Risk Factors set
forth in the Company's Form 10 dated January 16, 2001. Such
forward-looking statements may be identified, without limitation,
by the use of the words "anticipates," "believes," "estimates,"
"expects," "intends," "plans," "predicts," "projects," and
similar expressions.
The Company's expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a
reasonable basis, including without limitation, management's
examination of the historical operating trends, data contained in
the Company's records and other data available from third
parties. There can be no assurance, however, that the Company's
expectations, beliefs or projections will be achieved or
accomplished.
-1-
CONX CAPITAL CORPORATION
Accountants' Report and Condensed Financial Statements
March 31, 2002 and December 31, 2001
-2-
Conx Capital Corporation
March 31, 2002 and December 31, 2001
Contents
Independent Accountants' Report . . . . . . . . . . . 4
Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . 5
Statements of Income . . . . . . . . . . . . . . . . 6
Statements of Stockholders' Equity . . . . . . . . . 7
Statements of Cash Flows . . . . . . . . . . . . . . 8
Notes to Financial Statements . . . . . . . . . . . 9
-3-
Independent Accountants' Report
Board of Directors
CONX Capital Corporation
Little Rock, Arkansas
We have reviewed the balance sheet of Conx Capital Corporation as
of March 31, 2002 and the related statements of income, changes
in stockholder's equity and cash flows for the three-month
periods ended March 31, 2002 and 2001. These financial
statements are the responsibility of the Company's management.
We conducted our reviews 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 reviews we are not aware of any material
modifications that should be made to the financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the balance
sheet as of December 31, 2001 and the related statements of
income, statements of stockholders' equity and cash flows for the
year then ended and in our report dated February 22, 2002, we
expressed an unqualified opinion on those financial statements.
In our opinion, the information set forth in the accompanying
balance sheet as of December 31, 2001 is fairly stated, in all
material respects, in relation to the balance sheet from which it
has been derived.
Little Rock, Arkansas
May 10, 2002
-4-
Conx Capital Corporation
Balance Sheets
March 31, 2002 and December 31, 2001
Assets
March 31, December
2002 31,
(Unaudited) 2001
---------------------
Cash $ 143,309 $ 888,826
Accounts receivable - other -- 87,974
Notes receivable - affiliated companies 1,457,891 739,027
Equipment, at cost, net of accumulated
depreciation 5,943,703 6,452,176
--------- ---------
$ 7,544,903 $ 8,168,003
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Long-term debt $ 4,243,680 $ 5,183,758
Deferred income taxes 1,247,859 1,126,488
--------- ---------
Total liabilities 5,491,539 6,310,246
========= =========
Stockholders' Equity
Common stock, $.01 par value, authorized
and issued 7,000,000 shares 70,000 70,000
Retained earnings 2,001,364 1,805,757
--------- ---------
2,071,364 1,875,757
Treasury stock, at cost, 350,000 shares (18,000) (18,000)
--------- ---------
2,053,364 1,857,757
--------- ---------
$ 7,544,903 $ 8,168,003
========= =========
See Notes to Financial Statements
and Accountants' Review Report 5
Conx Capital Corporation
Statements of Income
Three Months Ended March 31, 2002 and 2001
Three Months Ended March
31,
2002 2001
------------------------
(Unaudited)
Lease Income $ 907,152 $ 1,152,600
---------- -----------
Operating Expenses
Management fees 15,000 15,000
Depreciation 508,473 678,785
Interest expense 70,596 154,330
Professional fees 7,200 9,000
Directors fees 5,000 5,000
Rent 1,500 1,500
Taxes and licenses 265 3,705
Other 1,014 13
---------- -----------
609,048 867,333
---------- -----------
Operating Income 298,104 285,267
Other Income 18,874 6,885
---------- -----------
Income Before Income Taxes 316,978 292,152
Provision for Income Taxes 121,371 114,858
---------- -----------
Net Income $ 195,607 $ 177,294
========== ===========
Earnings Per Share
Net income $ 195,607 $ 177,294
Weighted average shares of common
stock 6,650,000 6,650,000
--------- -----------
Basic earnings per share $ 0.0294 $ 0.0266
========== ===========
See Notes to Financial Statements
and Accountants' Review Report 6
Conx Capital Corporation
Statements of Stockholders' Equity
Three Months Ended March 31, 2002 and 2001
Common Retained Treasury
Stock Earnings Stock Total
---------------------------------------
Balance, December 31, 2000 $ 70,000 $ 915,428 $ (18,000) $ 967,428
Net income (unaudited) -- 177,294 -- 177,294
------- -------- ------- --------
Balance, March 31, 2001 70,000 1,092,722 (18,000) 1,144,722
Net income -- 713,035 -- 713,035
-------- -------- ------- ---------
Balance, December 31, 2001 70,000 1,805,757 (18,000) 1,857,757
Net income (unaudited) -- 195,607 -- 195,607
------- --------- ------- ---------
Balance, March 31, 2002
(Unaudited) $ 70,000 $2,001,364 $ (18,000) $2,053,364
======= ========= ======== =========
See Notes to Financial Statements
and Accountants' Review Report 7
Conx Capital Corporation
Statements of Cash Flows
Three Months Ended March 31, 2002 and 2001
March 31, March 31,
2002 2001
(Unaudited) (Unaudited)
----------------------
Operating Activities
Net income $ 195,607 $ 177,294
Items not requiring cash
Depreciation 508,473 678,785
Deferred income taxes 121,371 114,858
Changes in
Accounts receivable 87,974 566
Accounts payable and accrued expenses -- 4,480
--------- ---------
Net cash provided by operating
activities 913,425 975,983
--------- ---------
Investing Activities
Increase in notes receivable (718,864) (216,051)
-------- --------
Net cash used in investing
activities (718,864) (216,051)
-------- --------
Financing Activities
Payments on long-term debt (940,078) (875,454)
-------- ----------
Net cash used in financing
activities (940,078) (875,454)
-------- ---------
Decrease in Cash (745,517) (115,522)
Cash, Beginning of Period 888,826 227,948
-------- --------
Cash, End of Period $ 143,309 $ 112,426
========= =========
Supplemental Cash Flow Information
Interest paid $ 70,596 $ 154,330
========= =========
See Notes to Financial Statements
and Accountants' Review Report 8
Conx Capital Corporation
Notes to Financial Statements
March 31, 2002 and December 31, 2001
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 three months ended March 31, 2002 and the year
December 31, 2001, all lease income was derived from one
affiliated company. The results of operations for the three
months ended March 31, 2002, 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.
These consolidated financial statements should be read in
conjunction with the 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
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
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
See Accountants' Review Report 9
Conx Capital Corporation
Notes to Financial Statements
March 31, 2002 and December 31, 2001
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 March 31, 2002, the approximate future minimum lease
income under these operating leases are as follows:
(Unaudited)
---------
2002 $ 333,750
==========
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 $907,152 and $4,298,713 for the three
months and year ended March 31, 2002 and December 31, 2001,
respectively.
Equipment under operating leases consists of the following at
March 31, 2002 and December 31, 2001:
2002
(Unaudited) 2001
-------------------------
Tractors $ 9,077,742 $ 9,077,742
Trailers 2,465,895 2,465,895
---------- ----------
11,543,637 11,543,637
Less accumulated depreciation 5,599,934 5,091,461
---------- ----------
$ 5,943,703 $ 6,452,176
========== ==========
See Notes to Financial Statements
and Accountants' Review Report 10
Conx Capital Corporation
Notes to Financial Statements
March 31, 2002 and December 31, 2001
Note 2: Long-term Debt
(Unaudited)
---------
Note payable - Navistar Financial
Corporation (A) $ 2,620,745
Note payable - Banc One Leasing Corp. (B) 440,445
Note payable - Fleet Capital Leasing (C) 265,298
Note payable - GE Capital Corporation (D) 917,192
---------
$ 4,243,680
==========
Aggregate annual maturities of long-term debt at
March 31, 2002:
2002 $ 2,098,410
2003 1,409,947
2004 531,625
2005 203,698
---------
$ 4,243,680
==========
(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 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. $15,000 during
the three months ended March 31, 2002 and March 31, 2001.
The Company had a note receivable from Harvey Manufacturing
Corporation in the amount of $753,226 at March 31, 2002 and
December 31, 2001, respectively.
See Notes to Financial Statements
and Accountants' Review Report 11
Conx Capital Corporation
Notes to Financial Statements
March 31, 2002 and December 31, 2001
The Company had a note receivable from Continental Express
SD, Inc., in the amount of $704,665 at March 31, 2002.
At March 31, 2002, the approximate future minimum lease
income under these operating leases are as follows:
(Unaudited)
-----------
2002 $ 333,750
==========
Note 4: Income Taxes
The provision for income taxes includes these components:
March 31,
2002 2001
(Unaudited> (Unaudited)
--------- ---------
Deferred income taxes $ 121,371 $ 114,858
--------- ---------
$ 121,371 $ 114,858
========= =========
A reconciliation of income tax expense at the statutory rate
to the Company's actual income tax expense is shown below:
March 31,
2002 2001
(Unaudtied) (Unaudited)
--------- ---------
Computed at the statutory rate (34%) $ 107,773 $ 112,829
Increase resulting from
State income taxes - net of federal
tax benefit 13,598 2,029
-------- --------
Actual tax provision $ 121,371 $ 114,858
========= =========
The tax effects of temporary differences related to deferred
taxes shown on the balance sheets were:
December 31,
2002 2001
(Unaudited) (Unaudited)
--------- ---------
Deferred tax assets
Net operating loss carryforwards
(expiring 2020) $ 24,451 $ 141,516
Deferred tax liabilities
Accumulated depreciation (1,272,310) (1,268,004)
--------- ---------
Net deferred tax liability $(1,247,859) $(1,126,488)
========= =========
See Accountants' Review Report 12
Conx Capital Corporation
Notes to Financial Statements
March 31, 2002 and December 31, 2001
Note 5: Equipment
Equipment consists of the following at March 31, 2002
and December 31, 2001:
2002
(Unaudited) 2001
--------- ----------
Tractors $ 9,077,742 $ 9,077,742
Trailers 2,465,895 2,465,895
---------- -----------
11,543,637 11,543,637
Less accumulated depreciation 5,599,934 5,091,461
---------- ----------
$ 5,943,703 $ 6,452,176
========== ==========
See Accountants' Review Report 13
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The following discussion and analysis below should be read
in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Quarterly Report on Form 10-
Q. To date, the Company's only activities and sources of
operating revenue have been leases of tractor and trailer truck
equipment to one affiliated company, Continental Express SD, Inc.
Results of Operations
Three Month Period ended March 31, 2002
Lease income was $907,152 for the quarter ended March 31, 2002,
as compared to $1,152,600 for the same period in 2001, a
decrease of $245,448 or 21.3%. Operating expenses
(consisting primarily of interest and depreciation) for the
three month period ended March 31, 2002 were $609,048, and
operating expenses as a percentage of lease income were 67.1.
For the same period in 2001, operating expenses were $867,333,
a decrease of $258,285 or 29.8%. Operating expenses as
a percentage of lease income were 75.3% for the first quarter
of 2001.
Income from operations for the quarter ended March 31, 2002
was $298,104, as compared to $285,267 for the first
quarter of 2001, resulting in an increase of $12,837 or
4.3% in 2002 over 2001. Other income for the three month
period ended March 31, 2002 was $18,874, as compared to $6,885
for the first quarter of 2001. Income before income taxes
for the quarter ended March 31, 2002 was $316,978, with a
provision for income taxes of $121,371, resulting in net income
for the three month period ended March 31, 2002 of $195,607.
For the quarter ending March 31, 2001, income before income
taxes was $292,152, with a provision for taxes of $114,858
resulting in net income for the period of 177,294. As a result,
income before income taxes increased $24,826 or 7.8% and
net income increased $18,313 or 9.4% for the first quarter of
2002 over the same period in 2001.
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) overcollateralization or reserve account
requirements in connection with loans pooled and sold, (iii)
interest, fees, and expenses associated with the Company's
warehouse credit and repurchase facilities with certain financial
institutions, (iv) federal and state income tax payments,
and (v) ongoing administrative and other operating
-14-
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.
Inflation
The impact of inflation is reflected in the increased cost
of the Company's operating expenses, excluding depreciation and
interest expense. Changes in interest rates have a greater
impact on the Company's performance than do the effects of
general levels of inflation. Inflation affects the Company
primarily through its effect on interest rates, since interest
rates normally increase during periods of high inflation and
decrease during periods of low inflation. The Company intends to
manage its exposure to inflationary interest rate risks by
closely monitoring the difference or spread between the
effective rate of interest received by the Company and the rates
payable by the Company.
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk
Market risk represents the potential loss resulting from
adverse changes in the value of financial instruments, either
derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates, commodity prices, and equity
security prices. The Company handles market risks in accordance
with its established policies; however, the Company does not
enter into derivatives or other financial instruments for trading
or speculative purposes. The Company does not have financial
instruments to manage and reduce the impact of changes in
interest rates at March 31, 2002 and December 31, 2001.
The Company held various financial instruments at March 31, 2002
and 2001, consisting of financial assets and liabilities
reported in the Company's Balance Sheets. (For additional
information regarding these financial instruments, refer to
Note 2 to the Company's financial statements.)
Interest Rate Risk - The Company is subject to interest rate
risk by financing operations through the issuance of certain
long-term Notes issued to various lenders. The fair market value
of long-term, fixed-interest rate debt is subject to interest
rate risk. Generally, the fair value of fixed-interest rate debt
will increase as interest rates fall and will decrease as
interest rates rise.
Foreign-Exchange Rate Risk - The Company currently has no
exposure to foreign-exchange rate risk because all of its
financial instruments are denominated in U.S. dollars.
Commodity Price Risk - The Company has no financial
instruments subject to commodity price risk.
Equity Security Price Risk - The Company has no financial
instruments subject to equity security price risk.
-15-
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no legal proceedings involving the Company as a party
or involving any of the Company's assets or leased properties.
ITEM 2. Changes in Securities
None of the rights of the holders of any of the Company's
securities were materially modified during the period covered by
this report. In addition, no class of securities of the Company
was issued or modified which materially limited or qualified any
class of its registered securities.
ITEM 3. Defaults Upon Senior Securities
During the period covered by this report there was no material
default in the payment of any principal, interest, sinking or
purchase fund installment, or any other material default not
cured within 30 days with respect to any indebtedness of the
Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders.
ITEM 5. Other Information
None
ITEM 6. (a) Exhibits and Reports on Form 10-Q
No exhibits or reports are being filed with this Form 10-Q.
(b) Reports on Form 8-K
No reports were filed for the period covered by this report.
-16-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONX Capital Corporation
By: /s/ Edward M. Harvey
------------------------------------
Edward M. Harvey, Chairman, Director
and President (Principal Executive
Officer)
Dated: May 15, 2002
By: /s/ Todd W. Tiefel
------------------------------------
Todd W. Tiefel, Secretary, Treasurer
and Director (Principal Financial and
Accounting Officer)
Dated: May 15, 2002
-17-